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The failure of the Maastricht criteria delayed Estonia's accession to the European Monetary Union (EMU) until January 2011. During this time, trading shares with Eurozone countries declined, raising questions about the optimal accession time. In this study, the macroeconomic effects of introducing a common currency are analyzed by considering the state of the economy in different years of accession. By accounting for currency conversion costs and in-house costs, we show that the trade effects of the EMU depend on the year of accession. In summary, a 'late' accession induces higher benefits in terms of an increase in GDP, private consumption, and investment. However, the additional investment demand for building up capital stock in export industries is much higher in the 'late' accession scenario. If foreign savings are not adjusted optimally, the 'early' accession scenario might be beneficial.

Estonia and the European Monetary Union Are There Benefits from a 'Late' Accession?