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Convergence and shocks in the road to EU: Empirical investigations for Bulgaria and Romania

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  • Jean-Marc Figuet

  • Nikolay Nenovsky

Abstract

Despite their progress Bulgaria and Romania significantly differ from the EU economies. In this article, on the basis of the theoretical and empirical achievements of the theory of optimal and (endogenous) currency areas we study to what extent the two South European economies are able to adopt the common economic (and above all monetary) policy of the EU, and to what extent the convergence to the EU stimulates the economic development of these countries. Despite the similarities, the two countries now differ fundamentally in their choice of a monetary regime ??? while Romania uses inflation targeting and a flexible exchange rate, Bulgaria has adopted a currency board regime. For this purpose we analyze: (i) the degree of nominal, real and financial convergence and synchronization of the economic cycle with that of the European Union (using unconditional ?? convergence approach). Income and price levels, inflation rate, interest rate, monetary aggregates, credit, productivity etc. are among the studied variables; (ii) the resistance to different external and internal shocks (using VAR model) as well as (iii) the mechanisms for balancing and absorption of these shocks. To give a better comparative picture we compose the panel including Hungary and Czech Republic.

Suggested Citation

  • Jean-Marc Figuet & Nikolay Nenovsky, 2006. "Convergence and shocks in the road to EU: Empirical investigations for Bulgaria and Romania," William Davidson Institute Working Papers Series wp810, William Davidson Institute at the University of Michigan.
    • Handle: RePEc:wdi:papers:2006-810
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    References listed on IDEAS

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    Cited by:

    1. Monica Răileanu Szeles, 2012. "What Lies beyond the Romania’s Economic Development," BRAND. Broad Research in Accounting, Negotiation, and Distribution, EduSoft Publishing, vol. 3(3), pages 54-63, December.
    2. Nikolay Nenovsky & Kiril Tochkov, 2013. "The Distribution Dynamics of Income in Central and Eastern Europe relative to the EU: A Nonparametric Analysis," William Davidson Institute Working Papers Series wp1063, William Davidson Institute at the University of Michigan.
    3. Hiranya Nath & Kiril Tochkov, 2013. "Relative inflation dynamics in the new EU member countries of Central and Eastern Europe," Empirical Economics, Springer, vol. 45(1), pages 1-22, August.
    4. Nikolay Nenovsky, 2010. "The Bulgarian Economic Thought since 1989: A Personal View," ICER Working Papers 21-2010, ICER - International Centre for Economic Research.
    5. Elena-Raluca, MOISESCU (DUICAN), 2014. "Economic Development And Convergence In Romania," Management Strategies Journal, Constantin Brancoveanu University, vol. 26(4), pages 159-165.
    6. Hubert Gabrisch & Lucjan T. Orlowski, 2010. "Interest Rate Convergence in Euro-Candidate Countries: Volatility Dynamics of Sovereign Bond Yields," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 46(6), pages 69-85, November.
    7. Pelinescu, Elena, 2012. "Transmission Mechanism of Monetary Policy in Romania. Insights into the Economic Crisis," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(3), pages 5-21, September.
    8. Pelinescu, Elena & Caraiani, Petre, 2006. "Does the Inflation Targeting Have a Positive Role upon the Convergence of the Inflation Rate?," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 3(3), pages 39-50, September.
    9. Georgiana-Loredana Schipor, 2020. "Euro Adoption in Romania: An Exploration of Convergence Criteria," Ovidius University Annals, Economic Sciences Series, Ovidius University of Constantza, Faculty of Economic Sciences, vol. 0(2), pages 190-199, December.
    10. Eftychia Tsanana & Constantinos Katrakilidis, 2014. "Do Balkan economies catch up with EU? New evidence from panel unit root analysis," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 41(4), pages 641-662, November.

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    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • P2 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies

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