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Ready or not? Constructing the Monetary Union Readiness Index

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  • Szilárd Erhart

    (Joint Research Centre, European Commission, Brussels, Belgium)

Abstract

While all EU Member States can join the group's monetary union, the euro area, some members are far more ready for the adoption and use of the single European currency. Here, we construct a new Monetary Union Readiness Index (MURI) for the EU Member States. The theoretical framework of the index is built on the economic theory of Optimal Currency Areas and EU regulations such as the Treaty and the Maastricht criteria, and the Regulation on the Macroeconomic Imbalance Procedure. The index measures (i) nominal convergence, (ii) real convergence, and (iii) macroeconomic stability. The MURI Index provides an easy to use real-time policy tool to evaluate both candidate and current euro area members. Hence, it complements, aggregates and communicates key information in annual convergence reports and in official statistics. Our evaluation finds that Austria, Finland, Denmark, Sweden and Germany showed the highest level of compliance with the different euro area criteria in 2018, while Greece, Cyprus, Romania, Spain, and Italy were the least compliant.

Suggested Citation

  • Szilárd Erhart, 2022. "Ready or not? Constructing the Monetary Union Readiness Index," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 11(1), pages 23-66.
    • Handle: RePEc:cbk:journl:v:11:y:2022:i:1:p:23-66
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    File URL: http://www.cbcg.me/repec/cbk/journl/vol11no1-2.pdf
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    References listed on IDEAS

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    1. Joshua Aizenman & Menzie D. Chinn & Hiro Ito, 2008. "Assessing the Emerging Global Financial Architecture: Measuring the Trilemma's Configurations over Time," NBER Working Papers 14533, National Bureau of Economic Research, Inc.
    2. Chrysost Bangake & Aram Belhadj & Nabil Jedlane, 2007. "Theory and history of monetary unions: lessons and prospects for Maghreb," Post-Print halshs-00370384, HAL.
    3. Jörg Bibow, 2016. "Making the euro viable: the Euro Treasury Plan," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 13(1), pages 72-86, April.
    4. Marco Buti & Maya Jollès & Matteo Salto, 2019. "The Euro — A Tale of 20 Years: What Are the Priorities Going Forward?," Intereconomics: Review of European Economic Policy, Springer;ZBW - Leibniz Information Centre for Economics;Centre for European Policy Studies (CEPS), vol. 54(2), pages 65-72, March.
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    Cited by:

    1. Peter Gottfried, 2021. "Thoughts on the Dilemma of When to Introduce the Euro in Hungary," Financial and Economic Review, Magyar Nemzeti Bank (Central Bank of Hungary), vol. 20(3), pages 110-126.
    2. Mikhail V. Zharikov, 2022. "The Model of a Shared Interest Rate for a Group of Countries to Circulate a Digital Currency: Featuring the BRICS," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 11(2), pages 187-208.

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    More about this item

    Keywords

    monetary union; single currency; composite indicator.;
    All these keywords.

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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