Working Paper: CEPR ID: DP2119
Authors: Laurence Boone; Mathilde Maurel
Abstract: This paper tries to assess whether it would be optimal for the CEECs to form a monetary uni on with either Germany or the EU. This cannot be done without discussing first the Maastricht criteria, which are the condition ‘sine qua non’ for a country to be eligible. Yet, they are often independent from more structural criteria (Bayoumi and Eichengreen (1996b)). Hence, this paper argues that although the CEECs do not satisfy -yet- the Maastricht criteria, their economic cycle is close enough to that of the EU and Germany for a monetary union to bring them great benefits. Indeed, using a methodology derived by L. Reichlin and M. Forni (1997) and C. Fuss (1997), it can be shown that (i) the percentage of CEECs business cycle fluctuations explained by a German shock is very high,; (ii) furthermore, the impulse responses are positively correlated. These suggest that the CEECs would not suffer from a common monetary policy .
Keywords: optimal currency area; eastern enlargement; economics of transition
JEL Codes: E32; F3; F42
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| CEECs' impulse responses to German shocks (F41) | EU member countries' impulse responses (O52) |
| CEECs' business cycles (F44) | common monetary policy benefits (E52) |
| German shock (N14) | CEECs' business cycle fluctuations (F44) |
| German shock (N14) | CEECs' unemployment detrended cycles (E32) |