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Early Locking to the Euro: Some Estimates for the New EU Countries based on Equilibrium Exchange Rates

Listed author(s):
  • Martin Melecky

The ECB recommends to prospective euro-area members that they choose the central parities, for fixing their currencies against the euro, consistent with a broad range of economic indicators while taking account of the market rate as well. In this paper, we estimate a behavioral model of the real exchange rates for a group of the EU 5 countries, along with equilibrium real exchange rates. In addition, we propose a methodology for estimating an optimal timing for ERM II entry based on convergence properties of the equilibrium real exchange rate. We find that the estimated optimal timing for ERM II entry derived from the analysis of the equilibrium real exchange rate suggests that fixing the national currencies of the EU 5 countries in forthcoming years would not be in contradiction with the convergence properties of the real equilibrium exchange rate.

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Paper provided by EconWPA in its series International Finance with number 0503008.

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Length: 32 pages
Date of creation: 29 Mar 2005
Handle: RePEc:wpa:wuwpif:0503008
Note: Type of Document - pdf; pages: 32
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