- International Monetary Fund
- Published Date:
- April 2005
© 2005 International Monetary Fund
Production: IMF Multimedia Services Division
Figures: Theodore F. Peters, Jr.
Adopting the euro in Central Europe : challenges of the next step in European integration / Susan Schadler … [et al.]—Washington, D.C.: International Monetary Fund, 2005.
p. cm.—(Occasional paper, ISSN 0251-6365) ; 234
Includes bibliographical references.
1. Euro—Europe, Central. 2. Europe, Central—Economic integration. 3. Economic and Monetary Union. 4. Monetary policy—Europe, Central. I. Schadler, Susan. II. Occasional paper (International Monetary Fund) ; no. 234
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The following conventions are used in this paper:
… to indicate that data are not available or not applicable;
— to indicate that the figure is zero or less than half the final digit shown;
– between years or months (for example, 1991–92 or January–June) to indicate the years or months covered, including the beginning and ending years or months;
/ between years or months (for example, 1991/92) to indicate a fiscal or financial year.
“Billion” means a thousand million; “trillion” means a thousand billion.
“Basis points” refer to hundredths of 1 percentage point (for example, 25 basis points are equivalent to ¼ of 1 percentage point).
Minor discrepancies between constituent figures and totals are due to rounding.
The term “country,” as used in this paper, does not in all cases refer to a territorial entity that is a state as understood by international law and practice; the term also covers some territorial entities that are not states, but for which statistical data are maintained and provided internationally on a separate and independent basis.
Upon entry into the European Union (EU), countries become members of the Economic and Monetary Union (EMU) with a derogation from adopting the euro as their currency (that is, each country joining the EU commits to replace its national currency with the euro, but can choose when to request permission to do so). For most of these countries, adopting the euro will entail major economic changes. This paper examines likely economic developments and policy challenges for the five former transition countries in central Europe—the Czech Republic, Hungary, Poland, the Slovak Republic, and Slovenia—that joined the EU in May 2004, operated independent monetary policies, but had not yet achieved policy convergence with the rest of the euro area by that time.
This study was prepared by a team led by Susan Schadler and consisting of Paulo Drummond, Louis Kuijs, Zuzana Murgasova, and Rachel van Elkan. The study has benefited from comments by various departments of the IMF; staff of the European Central Bank (ECB) and the European Commission (EC); participants in a conference on Euro Adoption in Prague in February 2004; and seminars at the National Bank of Poland, Czech National Bank, and Magyar Nemzeti Bank. Material presented in this study was originally prepared as background for an IMF Executive Board seminar on euro adoption in February 2004. The cutoff date for data revision was April 2004. Since that date, revisions to data for Greece, in particular, were significant and could influence the conclusions of parts of the study.
The authors are particularly grateful to Indra Mahadewa, Socorro Santayana, and Jocelyn Rivera for processing the original text; to Jolanta Stefanska and Jehan Panthaki for excellent research assistance; and to Jim McEuen of the External Relations Department, who edited the paper and coordinated the production of the publication. The views in the paper are those of the authors and do not necessarily reflect the views of national authorities or IMF Executive Directors.
Analysis of varianceB and K
Bank credit to the private sectorBEER
Behavioral equilibrium exchange rateBIS
Bank for International SettlementsB-S
Common Agricultural Policy (EU)CEC
Central European countryCEC-H
CECs minus HungaryCPI
Consumer price indexCUSUM
Cumulated sum of recursive residualsEC
European Commission (EU)ECB
European Central Bank (EU)ECOFIN Council
Council of Economics and Finance Ministers of the EUEFC
Economic and Financial Committee (EU)EMU
Economic and Monetary Union (EU)ERM/ERM2
Exchange Rate Mechanism (EU)ESA-95
European System of Accounts 1995 (Eurostat, 1996)EU
Statistical Office of the European Communities (EU)FDI
Foreign direct investmentFEER
Fundamental equilibrium exchange rateFRER
Fundamental real exchange rateFSAP
Financial Sector Assessment Program (IMF–World Bank)FSSA
Financial System Stability Assessment (IMF)GDP
Gross domestic productGEM
Global Economic Model (IMF)GFS
Government Finance Statistics (IMF)GFSM
Government Finance Statistics Manual 2001 (IMF, 2001)GLS
Generalized least squaresGMM
Generalized matrix of momentsHP
International investment positionIRF
Impulse response functionMF
Multiregion Macroeconomic Model (IMF)NATREX
Natural real exchange rateOCA
Optimum currency areaOECD
Organization for Economic Cooperation and DevelopmentOLS
Ordinary least squaresPAYG
Pay as you goPPP
Purchasing power parityREER
Real effective exchange rateRER
Real exchange rateSGP
Stability and Growth Pact (EU)SITC
Standard International Trade ClassificationSNA
System of National Accounts 1993 (EC and others, 1993)SVAR
Taylor efficiency frontierTFP
Total factor productivityULC
Unit labor costsUN
United Nations Development ProgramVAR
Vector error correction modelVSTFF
Very short-term financing facility (ECB)WEO
World Economic Outlook (IMF)