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The Costs of EMU for Transition Countries

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  • Alexandra Ferreira Lopes

    (ISEG, ISCTE and DINÂ MIA)

Abstract

Czech Republic, Hungary and Poland will have to join the European and Monetary Union. Surprisingly, there is very little work on the welfare consequences of the loss of monetary policy flexibility for these countries. This paper fills this void by providing a framework to evaluate quantitatively the economic costs of joining the EMU. Using a two country dynamic general equilibrium model with sticky prices we investigate the economic implications of the loss of monetary policy flexibility associated with EMU for each country. The main contribution of our general equilibrium approach is that we can evaluate the effects of monetary policy in terms of welfare. Our findings suggest that these economies may experience sizable welfare losses as a result of joining the EMU. Results show that the cost associated with the loss of the monetary policy flexibility is bigger in the presence of persistence technological shocks, weak correlation of monetary shocks, strong risk aversion and a small trade share with the EMU

Suggested Citation

  • Alexandra Ferreira Lopes, 2007. "The Costs of EMU for Transition Countries," Money Macro and Finance (MMF) Research Group Conference 2006 2, Money Macro and Finance Research Group.
    • Handle: RePEc:mmf:mmfc06:2
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    Cited by:

    1. Lipinska, Anna, 2006. "The Maastricht convergence criteria and optimal monetary policy for the EMU accession countries," MPRA Paper 1795, University Library of Munich, Germany.
    2. Michał Gradzewicz & Krzysztof Makarski, 2013. "The business cycle implications of the euro adoption in Poland," Applied Economics, Taylor & Francis Journals, vol. 45(17), pages 2443-2455, June.
    3. Krzysztof MAKARSKI & Michal GRADZEWICZ, 2009. "The Macroeconomic Effects of Losing Autonomous Monetary Policy after the Euro Adoption in Poland," EcoMod2009 21500061, EcoMod.
    4. Lipinska, Anna, 2008. "The Maastricht Criteria and Optimal Monetary and Fiscal Policy Mix for the EMU Accession Countries," MPRA Paper 16376, University Library of Munich, Germany.

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    More about this item

    Keywords

    Monetary Policy; Eastern and Central Europe Countries; Euro; Open Economy Macroeconomics; General Equilibrium;
    All these keywords.

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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