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Do Candidate Countries Fit the Optimum-Currency-Area Criteria?

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  • Monika Blaszkiewicz
  • Przemyslaw Wozniak

Abstract

This paper attempts to assess the degree to which CEE candidate countries fulfill Optimal Currency Area criteria set out in the literature. The literature review provided focuses on the seminal contributions of Mundell (1961) and McKinnon (1963) and later evolution of the theory as well as papers related to CEE candidate countries. The empirical analysis indicates that candidate countries are already very open to trade with the EU, in many cases much more open than the members of the EU themselves. Nonetheless, results of the static real activity comovements, with the exception of Hungary and Slovenia, point to weak or even negative correlations of shocks in the Euro-zone and respective acceding economies. Another approach pursued in the paper involves examining the nominal and real exchange rate variability to determine whether the exchange rate flexibility constitutes an important instrument of absorbing asymmetric shocks. From the comparison of the exchange rate stability in CEE with that of ClubMed countries in the years preceding the formation of the EMU it follows that the candidate countries as a group resemble the ClubMed countries in the early, rather than, mid 1990s.

Suggested Citation

  • Monika Blaszkiewicz & Przemyslaw Wozniak, 2003. "Do Candidate Countries Fit the Optimum-Currency-Area Criteria?," CASE Network Studies and Analyses 0267, CASE-Center for Social and Economic Research.
    • Handle: RePEc:sec:cnstan:0267
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    References listed on IDEAS

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    1. Fidrmuc, Jarko & Korhonen, Iikka, 2003. "Similarity of supply and demand shocks between the euro area and the CEECs," Economic Systems, Elsevier, vol. 27(3), pages 313-334, September.
    2. Andrew K. Rose, 1999. "One Money, One Market: Estimating the Effect of Common Currencies on Trade," NBER Working Papers 7432, National Bureau of Economic Research, Inc.
    3. Ronald McKinnon, 2000. "Mundell, the Euro, and Optimum Currency Areas," Working Papers 00009, Stanford University, Department of Economics.
    4. Roland Vaubel, 1976. "Real exchange-rate changes in the European community: The empirical evidence and its implications for European currency unification," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 112(3), pages 429-470, September.
    5. Iikka Korhonen, 2003. "Some empirical tests on the integration of economic activity between the euro area and the accession countries," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 11(1), pages 177-196, March.
    6. Andrew K. Rose, 2000. "One money, one market: the effect of common currencies on trade," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 15(30), pages 08-45.
    7. Jacques Mélitz, 1995. "A suggested reformulation of the theory of optimal currency areas," Open Economies Review, Springer, vol. 6(3), pages 281-298, July.
    8. Stephen Ching & Michael B. Devereux, 2000. "Risk Sharing and the Theory of Optimal Currency Areas: A Re-examination of Mundell 1973," Working Papers 082000, Hong Kong Institute for Monetary Research.
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    Cited by:

    1. Md. Abdur Rahman Forhad, 2014. "How many currencies in Saarc countries? a multivariate structural var approach," Journal of Developing Areas, Tennessee State University, College of Business, vol. 48(4), pages 265-286, October-D.
    2. Fidrmuc, Jarko & Korhonen, Iikka, 2006. "Meta-analysis of the business cycle correlation between the euro area and the CEECs," Journal of Comparative Economics, Elsevier, vol. 34(3), pages 518-537, September.
    3. 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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