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The admission of accession countries to an enlarged monetary union: a tentative assessment

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  • Ca' Zorzi, Michele
  • De Santis, Roberto A.

Abstract

The enlargement of the European monetary union to include the accession countries (ACs) will not lead to higher average inflation in the enlarged euro area, but only to inflation redistribution across countries if continuity of the monetary policy framework is preserved. In the short term, unanticipated shocks to the real exchange rate may instead affect aggregate inflation if member countries' economic structure differs. When comparing welfare, inflation and output stabilisation, we find that the size, differences in economic structure and the variance-covariance matrix of supply and real exchange rate shocks play a key role. The numerical results indicate that the implications for the euro area are significant only if we assume a strong real exchange rate appreciation and if ACs are weighted in terms of purchasing power parity standards. In the event of real exchange rate or country-specific supply shocks in ACs, the consequences would be limited for both the current and the enlarged euro area, but sizeable for ACs themselves. JEL Classification: E52, E58, F33, F40

Suggested Citation

  • Ca' Zorzi, Michele & De Santis, Roberto A., 2003. "The admission of accession countries to an enlarged monetary union: a tentative assessment," Working Paper Series 216, European Central Bank.
  • Handle: RePEc:ecb:ecbwps:2003216
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    References listed on IDEAS

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    Cited by:

    1. Michal Franta & Branislav Saxa & Katerina Smidkova, 2007. "Inflation Persistence in New EU Member States: Is It Different Than in the Euro Area Members?," Working Papers 2007/10, Czech National Bank, Research Department.
    2. Ascari, Guido & Rankin, Neil, 2007. "Perpetual youth and endogenous labor supply: A problem and a possible solution," Journal of Macroeconomics, Elsevier, vol. 29(4), pages 708-723, December.
    3. Ramon Maria-Dolores & Jose Garcia-Solanes, 2004. "Exchange Rate Regimes for the New Member States of the European Union," Econometric Society 2004 Australasian Meetings 306, Econometric Society.
    4. Ca' Zorzi, Michele & De Santis, Roberto A., 2004. "Currency unions and the real exchange rate," Economics Letters, Elsevier, vol. 85(1), pages 23-27, October.

    More about this item

    Keywords

    accession countries; Balassa-Samuelson effect; European Monetary Union; exchange rate regimes; monetary policy;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General

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