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Costs and benefits of Slovakia entering the euro area. A quantitative evaluation

Author

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  • Juraj Zeman

    () (National Bank of Slovakia, Research Department)

Abstract

Entering monetary union brings both benefits and costs. The loss of an independent monetary policy, including the loss of exchange rate policy, constrains the ability to stabilize the domestic economy in the event of asymmetric shocks. This leads to more volatile business cycles and hence lower utility of risk-averse agents in the economy. On the other hand, the common currency reduces transaction costs, thus increasing trade and growth. The objective of this article is to quantitatively evaluate these costs and benefits, using an estimated two-country DSGE model for Slovakia and the euro area.

Suggested Citation

  • Juraj Zeman, 2012. "Costs and benefits of Slovakia entering the euro area. A quantitative evaluation," Working and Discussion Papers WP 1/2012, Research Department, National Bank of Slovakia.
  • Handle: RePEc:svk:wpaper:1016
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    More about this item

    Keywords

    monetary union; costs and benefits; two-country DSGE;

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • 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
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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