Exchange Rate Regimes and Supply Shocks Asymmetry: The Case of the Accession Countries

CERGE-EI Working Paper No. 206

40 Pages Posted: 11 Sep 2003

See all articles by Jan Babetski

Jan Babetski

Center For Econ Research & Grad Education, and Econ Institute, Prague (CERGE-EI); National Center for Scientific Research (CNRS) - Research Center On Transition Economics (ROSES)

Laurence Boone

Organization for Economic Co-Operation and Development (OECD) - Economics Department (ECO)

Mathilde Maurel

Université Paris I Panthéon-Sorbonne - Centre Maison des Sciences Economiques

Multiple version iconThere are 3 versions of this paper

Date Written: January 2003

Abstract

This paper reviews the pros and cons of an early EU enlargement towards Central and Eastern European Countries (CEECs hereafter). Firstly, the Maastricht criteria, which cannot be literally assessed during the catching up process, but that nevertheless mirror the huge efforts undertaken in order to (i) stabilise the economies, (ii) converge towards the EU, and then (iii) participate in the EMU, are analysed. Secondly, real convergence is observed to occur at different rates, depending upon the initial conditions faced and the productivity gains realised by each country. Thirdly, computing the correlation of demand and supply shocks in a sample of Euro countries, such as Ireland, Portugal and Spain, at the time when they were entering the EU and the CEECs, gives some indication of the similarity of the business cycles and economic structures of the CEECs on the one hand, and the EU on the other. However, we argue that looking at static correlation only (averaged over the last decade) is too simplistic, as these averages will be blurred by the transition process. Using the Kalman filter, we are able to compute time varying correlation, hence differentiating between the transition and the most recent period. Our results emphasise an ongoing process of demand shocks convergence, but supply shocks divergence. Various exchange rate strategies are then discussed.

Keywords: EU enlargement, exchange rate regimes, OCA criteria, Kalman filter

JEL Classification: E32, F30, F42

Suggested Citation

Babeckij (Babetski), Jan (Ian) and Boone, Laurence and Maurel, Mathilde, Exchange Rate Regimes and Supply Shocks Asymmetry: The Case of the Accession Countries (January 2003). CERGE-EI Working Paper No. 206, Available at SSRN: https://ssrn.com/abstract=412032 or http://dx.doi.org/10.2139/ssrn.412032

Jan (Ian) Babeckij (Babetski) (Contact Author)

Center For Econ Research & Grad Education, and Econ Institute, Prague (CERGE-EI) ( email )

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Czech Republic

HOME PAGE: http://www.cerge-ei.cz

National Center for Scientific Research (CNRS) - Research Center On Transition Economics (ROSES)

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Laurence Boone

Organization for Economic Co-Operation and Development (OECD) - Economics Department (ECO) ( email )

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France
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Mathilde Maurel

Université Paris I Panthéon-Sorbonne - Centre Maison des Sciences Economiques ( email )

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France