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Stability of Monetary Unions : Lessons from the Break-Up of Czechoslovakia

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  • Fidrmuc, J.

    (Tilburg University, Center For Economic Research)

  • Horváth, J.

Abstract

In 1993, Czechoslovakia experienced a two-fold break-up: On January 1, the country disintegrated as a political union, while preserving an economic and monetary union. Then, the Czech-Slovak monetary union collapsed on February 8. We analyze the economic background of the two break-ups, and discuss lessons for the stability of monetary unions in general. We argue that Czechoslovakia fulfilled some of the optimum currency area criteria, however, given the low correlation of permanent shocks, it appears it was relatively less integrated than some other existing unions. That, along with low labor mobility and a higher concentration of heavy and military industries in Slovakia, made the Czechoslovak economy vulnerable to asymmetric economic shocks-such as those induced by the economic transition. Furthermore, the Czech-Slovak monetary union was marred by low credibility, lack of political commitment, low exit costs, and the absence of fiscal transfers.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Fidrmuc, J. & Horváth, J., 1998. "Stability of Monetary Unions : Lessons from the Break-Up of Czechoslovakia," Discussion Paper 1998-74, Tilburg University, Center for Economic Research.
  • Handle: RePEc:tiu:tiucen:9f40d0f9-5b1f-4057-bea5-174ed586bd80
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    More about this item

    Keywords

    Optimum currency areas; disintegration; Czechoslovakia;
    All these keywords.

    JEL classification:

    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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