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The process of convergence towards the euro for the Visegrad-4 countries

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  • Giuliana Passamani

Abstract

The aim of the paper is to analyze the foreign transmission mechanism between each of the Visegrad-4 countries and the eurozone, through an empirical analysis of the basic international parity conditions linking Czech, Hungarian, Polish and Slovakian inflations and interest rates with the ones of the current euro area members. The focus of the analysis is to show the differences among these catching-up economies, with particular attention to their process of convergence towards the eurozone economy. For reasons due to the availability of data, the sample covers the last decade. We use the cointegrated VAR model to define longrun stationary relations as well as common stochastic trends. The methodology adopted is properly apt to uncover the dynamic structure underlying the stochastic behaviour of prices, interest rates and exchange rate. Of particular interest is the empirical finding that the parities do not hold on their own, as expected, but that weaker form of the same parities, or linear combinations of them, hold in our data set, with some differences for each country. Also the process of convergence is different: the Czech Republic seems to have reached a relative convergence, while for the other countries we have that the process show a tendency towards convergence.

Suggested Citation

  • Giuliana Passamani, 2008. "The process of convergence towards the euro for the Visegrad-4 countries," Department of Economics Working Papers 0825, Department of Economics, University of Trento, Italia.
    • Handle: RePEc:trn:utwpde:0825
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    References listed on IDEAS

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    1. Balázs Égert & Ronald MacDonald, 2006. "Monetary Transmission Mechanism in Transition Economies: Surveying the Surveyable," MNB Working Papers 2006/5, Magyar Nemzeti Bank (Central Bank of Hungary).
    2. Katarina Juselius & Ronald MacDonald, 2000. "Interest Rate and Price Linkages between the USA and Japan: Evidence from the Post-Bretton Woods Period," Discussion Papers 00-13, University of Copenhagen. Department of Economics.
    3. Katarina Juselius & Ronald MacDonald, 2000. "International Parity Relationships between Germany and the United States: A Joint Modelling Approach," Discussion Papers 00-10, University of Copenhagen. Department of Economics.
    4. MacDonald, Ronald, 1993. "Long-Run Purchasing Power Parity: Is It for Real?," The Review of Economics and Statistics, MIT Press, vol. 75(4), pages 690-695, November.
    5. Kevin D. Hoover & Soren Johansen & Katarina Juselius, 2008. "Allowing the Data to Speak Freely: The Macroeconometrics of the Cointegrated Vector Autoregression," American Economic Review, American Economic Association, vol. 98(2), pages 251-255, May.
    6. Juselius, Katarina, 2006. "The Cointegrated VAR Model: Methodology and Applications," OUP Catalogue, Oxford University Press, number 9780199285679.
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    Cited by:

    1. Catherine Prettner & Klaus Prettner, 2012. "After Two Decades of Integration: How Interdependent are Eastern European Economies and the Euro Area?," EcoMod2012 4421, EcoMod.
    2. Keppel, Catherine & Prettner, Klaus, 2015. "How interdependent are Eastern European economies and the Euro area?," The Quarterly Review of Economics and Finance, Elsevier, vol. 58(C), pages 18-31.

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    More about this item

    Keywords

    Visegrad_4 countries; PPP; UIP; RIP; Cointegrated VAR; Convergence;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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