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The New Member States and the Process towards EMU
Author(s) -
GarcíaSolanes José,
MaríaDolores Ramón
Publication year - 2008
Publication title -
review of development economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.531
H-Index - 50
eISSN - 1467-9361
pISSN - 1363-6669
DOI - 10.1111/j.1467-9361.2008.00478.x
Subject(s) - exchange rate flexibility , economics , exchange rate , member states , flexibility (engineering) , currency , rest (music) , international economics , european union , optimum currency area , common currency , currency board , macroeconomics , monetary economics , exchange rate regime , medicine , cardiology , management
The authors apply two complementary empirical criteria to eight new member states (NMSs) of the European Union to assess how ready they are to adopt the euro. As a first step, they recover demand and supply shocks and calculate the social losses implied by the two relevant exchange rate regimes: flexible rates and currency board. As a second step, the authors calculate the real exchange rates variability that these countries are currently experiencing and compare it to that of three Mediterranean countries during a similar period before they joined the EMU. The combination of the results of both tests shows that Estonia and Slovenia are the only countries that seem ready to adopt the euro within the shortest period of time foreseen by the Maastricht criteria; that is, after the two mandatory years in the ERM2. The rest of the countries will probably still need some exchange rate flexibility to absorb external shocks in the coming years.