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The Welfare Cost of the EMU for Transition Countries

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  • Alexandra Ferreira-Lopes

    (ISCTE - Department of Economics, UNIDE-ERC and DINÂMIA)

Abstract

Czech Republic, Hungary, and Poland are set to join the European and Monetary Union (EMU) in the near future. This paper offers a framework for the quantitative evaluation of the economic costs of joining the EMU. Using an open economy dynamic general equilibrium model with sticky prices, we investigate the economic implications of the loss of monetary policy flexibility associated with EMU for each of these economies. The main benefit of this general equilibrium approach is that we can directly evaluate the effects of monetary policy in terms of welfare. Our findings suggest that the Czech Republic and Poland may experience sizable welfare costs as a result of joining the EMU. Results for Hungary are less striking as welfare costs in this country seem to be negligible in the benchmark economy. Nevertheless, costs of joining the EMU are higher if government shocks are important and when the trade share with the EMU is small.

Suggested Citation

  • Alexandra Ferreira-Lopes, 2006. "The Welfare Cost of the EMU for Transition Countries," Working Papers Series 1 ercwp0308, ISCTE-IUL, Business Research Unit (BRU-IUL), revised 15 Jun 2008.
    • Handle: RePEc:isc:iscwp1:ercwp0308
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    File URL: http://bru-unide.iscte.pt/RePEc/pdfs/ERCwp0308.pdf
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    References listed on IDEAS

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    Cited by:

    1. Jan Bruha & Jaromir Tonner, 2018. "Independent Monetary Policy Versus a Common Currency: A Macroeconomic Analysis for the Czech Republic Through the Lens of an Applied DSGE Model," Working Papers 2018/19, Czech National Bank.
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    4. repec:cnb:ocpubv:as13 is not listed on IDEAS
    5. repec:cnb:ocpubv:as14 is not listed on IDEAS
    6. repec:cnb:ocpubv:as16 is not listed on IDEAS

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    More about this item

    Keywords

    Monetary Policy; Euro; Czech Republic; Poland; Hungary;
    All these keywords.

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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