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

Author

Listed:
  • Ian Babetski

    (UK - Univerzita Karlova [Praha, Česká republika] = Charles University [Prague, Czech Republic])

  • Laurence Boone

    (Economics department - MIT - Massachusetts Institute of Technology)

  • Mathilde Maurel

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

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.

Suggested Citation

  • Ian Babetski & Laurence Boone & Mathilde Maurel, 2004. "Exchange Rate Regimes and Supply Shocks Asymmetry: the Case of the Accession Countries," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-03416765, HAL.
    • Handle: RePEc:hal:cesptp:hal-03416765
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    References listed on IDEAS

    as
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    More about this item

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F30 - International Economics - - International Finance - - - General
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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