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

CentER Discussion Paper No. 9874

41 Pages Posted: 24 Mar 1999

See all articles by Jan Fidrmuc

Jan Fidrmuc

Brunel University - Department of Economics and Finance; L.E.M., Université de Lille; CESifo (Center for Economic Studies and Ifo Institute); Global Labor Organization (GLO); Institute for Strategy and Analysis, Government Office of the Slovak Republic

Julius Horvath

Central European University (CEU) - Department of Economics

Jarko Fidrmuc

Zeppelin University Friedrichshafen

Date Written: July 1998

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 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 higher concentration of heavy and military industries in Slovakia, made 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.

JEL Classification: F33, F36, F42

Suggested Citation

Fidrmuc, Jan and Fidrmuc, Jan and Horvath, Julius and Fidrmuc, Jarko, Stability of Monetary Unions: Lessons from the Break-Up of Czechoslovakia (July 1998). CentER Discussion Paper No. 9874, Available at SSRN: https://ssrn.com/abstract=146233 or http://dx.doi.org/10.2139/ssrn.146233

Jan Fidrmuc (Contact Author)

L.E.M., Université de Lille ( email )

France

Brunel University - Department of Economics and Finance ( email )

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CESifo (Center for Economic Studies and Ifo Institute) ( email )

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Germany

Global Labor Organization (GLO) ( email )

Collogne
Germany

Institute for Strategy and Analysis, Government Office of the Slovak Republic ( email )

Bratislava
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Julius Horvath

Central European University (CEU) - Department of Economics ( email )

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Hungary
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Jarko Fidrmuc

Zeppelin University Friedrichshafen ( email )

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Friedrichshafen, 88045
Germany