Eastern Enlargement of the European Monetary Union: An Optimal Currency Area-Theory View

INSTITUTIONAL, LEGAL AND ECONOMIC ASPECTS OF EMU, pp. 243-278, F. Breuss, G. Fink, S. Griller, eds., Springer Publisher , 2004

39 Pages Posted: 6 Feb 2012 Last revised: 1 Mar 2012

See all articles by Bernhard Mahlberg

Bernhard Mahlberg

Institute for Industrial Research (IWI); Vienna University of Economics and Business - Institute for Production Management

Ralf Kronberger

affiliation not provided to SSRN

Date Written: 2004

Abstract

An Optimum Currency Area (OCA) is characterized by a group of countries for which forgoing the exchange rate mechanism, as an instrument of correcting asymmetric shocks, is compensated by other economic policy instruments. In this paper, we address the issue whether the CEEC are a part of a European OCA or not. One of the OCA criteria is the similarity of business cycles among the countries participating in a currency union. The business cycles of the CEEC, as measured by the development of the Gross Domestic Product (GDP) and the Industrial Production (IP) index, are analysed and compared with the cycles of EU member states. Our analysis did not result in clear-cut conclusions concerning membership of a European OCA. In analyzing GDP business cycles we found only some evidence that the three Baltic states (Estonia, Latvia, and Lithuania) could benefit from forming their own currency union. We found little evidence for the preparedness of the candidate countries to join EMU. The analysis of IP data revealed that all of the business cycles in the candidate countries (except in Romania and Lithuania) are related to the German cycle, with some correlation to other EMU members. Most EU member states industry cycles are also correlated with the German cycle. We conclude therefore that a large group of countries, with cycles correlating with Germany, might belong to a European OCA and could therefore benefit from joining EMU. However, Lithuania and Romania clearly do not belong to a European OCA.

Keywords: Currency Area, European Monetary Union, Monetary Union, Optimal Currency Area

JEL Classification: E32, F36, F42, P24, P33

Suggested Citation

Mahlberg, Bernhard and Kronberger, Ralf, Eastern Enlargement of the European Monetary Union: An Optimal Currency Area-Theory View (2004). INSTITUTIONAL, LEGAL AND ECONOMIC ASPECTS OF EMU, pp. 243-278, F. Breuss, G. Fink, S. Griller, eds., Springer Publisher , 2004. Available at SSRN: https://ssrn.com/abstract=1999366

Bernhard Mahlberg (Contact Author)

Institute for Industrial Research (IWI) ( email )

Mittersteig 10/4
Vienna, 1050
Austria
+43 1 513 44 11 0 (Phone)
+43 1 513 44 11 2099 (Fax)

HOME PAGE: http://www.iwi.ac.at/

Vienna University of Economics and Business - Institute for Production Management ( email )

Welthandelsplatz 1
Building D2, Entrance C, 3rd floor
Vienna, 1020
Austria
+43 1 313 36 - 5615 (Phone)

HOME PAGE: http://https://www.wu.ac.at/en/prodmanengl/

Ralf Kronberger

affiliation not provided to SSRN ( email )

Register to save articles to
your library

Register

Paper statistics

Downloads
102
Abstract Views
831
rank
265,959
PlumX Metrics