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Poland's Accession to EMU - Choosing the Exchange Rate Parity

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  • Lukasz Rawdanowicz

Abstract

This paper deals with the choice of the exchange rate parity upon Poland's entry to EMU. Given that the euro parity should reflect some equilibrium exchange rate, two theoretical concepts are discussed: fundamental and behavioural equilibrium exchange rates. These approaches are then estimated. According to these calculations, the zlotyeuro exchange rate in 2002 is not far from the level consistent with the current state of fundamentals (as indicted by BEER) and requires some depreciation to be in line with the equilibrium level of fundamentals (as indicated by FEER). The possible FEERs range between 3.88 and 4.08 zlotys per euro depending on the variant and REER definition. The results should be treated with great caution as they are demonstrated to be sensitive to the adopted assumptions and model specifications. It is argued that the range of "optimal" exchange rates is quiet wide. This stems from the fact that consequences of exchange rate misalignment depend primarily on its degree as well as due to the intrinsic uncertainty about empirical estimates of equilibrium exchange rate. Moreover, the scope for depreciation of the nominal zloty-euro exchange rate is limited by the ensuing costs to the economy, needs to meet Maastricht criteria, and political bargain.

Suggested Citation

  • Lukasz Rawdanowicz, 2002. "Poland's Accession to EMU - Choosing the Exchange Rate Parity," CASE Network Studies and Analyses 0247, CASE-Center for Social and Economic Research.
    • Handle: RePEc:sec:cnstan:0247
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    File URL: https://case-research.eu/upload/publikacja_plik/69668_sa247.pdf
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    Citations

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    Cited by:

    1. Egert, Balazs & Halpern, Laszlo, 2006. "Equilibrium exchange rates in Central and Eastern Europe: A meta-regression analysis," Journal of Banking & Finance, Elsevier, vol. 30(5), pages 1359-1374, May.
    2. Lukasz Rawdanowicz, 2003. "The EMU Enlargement and the Choice of the Euro Conversion Rates: Theoretical and Empirical Issues," CASE Network Studies and Analyses 0269, CASE-Center for Social and Economic Research.
    3. repec:onb:oenbwp:y::i:106:b:1 is not listed on IDEAS
    4. Balázs Égert & Rafañ Kierzenkowski & Rafañ Kierzenkowski & Rafañ Kierzenkowski, 2005. "Asymmetric Fluctuation Bands in the ERM and ERM II : Lessons and Challenges for New EU Member States of Central and Eastern Europe," Eastern European Economics, Taylor & Francis Journals, vol. 43(1), pages 82-115, January.
    5. Marek Dabrowski, 2006. "A Strategy for EMU Enlargement," Springer Books, in: Marek Dabrowski & Jacek Rostowski (ed.), The Eastern Enlargement of the Eurozone, chapter 0, pages 199-225, Springer.

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