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


  • Jean-Marc Figuet


  • Nikolay Nenovsky



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

    1. Zsolt Darvas & György Szapáry, 2008. "Business Cycle Synchronization in the Enlarged EU," Open Economies Review, Springer, vol. 19(1), pages 1-19, February.
    2. Paul De Grauwe & Gunther Schnabl, 2004. "Exchange Rate Regimes and Macroeconomic Stability in Central and Eastern Europe," CESifo Working Paper Series 1182, CESifo Group Munich.
    3. Mongelli, Francesco Paolo & De Grauwe, Paul, 2005. "Endogeneities of optimum currency areas: what brings countries sharing a single currency closer together?," Working Paper Series 468, European Central Bank.
    4. Daniel Daianu & Laurian Lungu, 2007. "Inflation Targeting, Between Rhetoric and Reality. The Case of Transition Economies," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 4(1), pages 39-64, June.
    5. 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.
    6. António Afonso & Christiane Nickel & Philipp C. Rother, 2006. "Fiscal Consolidations in the Central and Eastern European Countries," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 142(2), pages 402-421, July.
    7. Ignazio Angeloni & Michael Flad & Francesco Paolo Mongelli, 2005. "Economic and monetary integration of the new Member States - helping to chart the route," Occasional Paper Series 36, European Central Bank.
    8. Christoph Duenwald & Nikolay Gueorguiev & Andrea Schaechter, 2005. "Too Much of a Good Thing? Credit Booms in Transition Economies; The Cases of Bulgaria, Romania, and Ukraine," IMF Working Papers 05/128, International Monetary Fund.
    9. Urmas Varblane & Priit Vahter, 2005. "An Analysis Of The Economic Convergence Process In The Transition Countries," University of Tartu - Faculty of Economics and Business Administration Working Paper Series 37, Faculty of Economics and Business Administration, University of Tartu (Estonia).
    10. Angeloni, Ignazio & Flad, Michael & Mongelli, Francesco Paolo, 2005. "Economic and monetary integration of New Member States - helping to chart the route," Occasional Paper Series 36, European Central Bank.
    11. Süppel, Ralph, 2003. "Comparing economic dynamics in the EU and CEE accession countries," Working Paper Series 267, European Central Bank.
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    Cited by:

    1. Hubert Gabrisch & Lucjan T. Orlowski, 2010. "Interest Rate Convergence in Euro-Candidate Countries: Volatility Dynamics of Sovereign Bond Yields," Emerging Markets Finance and Trade, M.E. Sharpe, Inc., vol. 46(6), pages 69-85, November.
    2. 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.
    3. 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.
    4. 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.
    5. 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.
    6. Nikolay Nenovsky, 2010. "The Bulgarian Economic Thought since 1989: A Personal View," ICER Working Papers 21-2010, ICER - International Centre for Economic Research.
    7. Elena-Raluca, MOISESCU (DUICAN), 2014. "Economic Development And Convergence In Romania," Management Strategies Journal, Constantin Brancoveanu University, vol. 26(4), pages 159-165.
    8. Gabrisch, Hurbert & Orlowski, Lucjan, 2009. "Interest Rate Convergence in the Euro-Candidate Countries: Volatility Dynamics of Sovereign Bond Yields," Working Papers 2009001, Sacred Heart University, John F. Welch College of Business.
    9. 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.
    10. 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.

    More about this item


    convergence; shocks; EU enlargement; Bulgaria and Romania;

    JEL classification:

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

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