BOFIT Discussion Papers, Institute for Economies in Transition, Bank of Finland
No 9/2001:
Some empirical tests on the integration of economic activity between the Euro area and the accession countries
Iikka Korhonen ()
Abstract: This note looks at the correlation of short-term business
cycles in the euro area and the EU accession countries. The issue is
assessed with the help of vector autoregressive models. There are clear
differences in the degree of correlation between accession countries. For
Hungary and Slovenia, euro area shocks can explain a large share of
variation in industrial production, while for some countries this influence
is much smaller. For the latter countries, the results imply that joining
the monetary union could entail reasonably large costs, unless their
business cycles converge closer to the euro area cycle. Generally, for
smaller countries the relative influence of the euro area business cycle is
larger. Also, it is found that the most advanced accession countries are at
least as integrated with the euro area business cycle as some small present
member countries of the monetary union.
Keywords: optimal currency area; monetary union; EU enlargement; (follow links to similar papers)
JEL-Codes: E32; F15; F42; (follow links to similar papers)
32 pages, September 14, 2001
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