Front Matter

Front Matter

Author(s):
International Monetary Fund
Published Date:
April 2005
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    © 2005 International Monetary Fund

    Production: IMF Multimedia Services Division

    Figures: Theodore F. Peters, Jr.

    Cataloging-in-Publication Data

    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.

    ISBN 1-58906-350-3

    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

    HG925.A36 2004

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    Contents

    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.

    Preface

    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.

    Abbreviations

    ANOVA

    Analysis of variance

    B and K

    Borghijs and Kuijs (2004)

    BCPS

    Bank credit to the private sector

    BEER

    Behavioral equilibrium exchange rate

    BIS

    Bank for International Settlements

    B-S

    Balassa-Samuelson

    CAP

    Common Agricultural Policy (EU)

    CEC

    Central European country

    CEC-H

    CECs minus Hungary

    CPI

    Consumer price index

    CUSUM

    Cumulated sum of recursive residuals

    EC

    European Commission (EU)

    ECB

    European Central Bank (EU)

    ECOFIN Council

    Council of Economics and Finance Ministers of the EU

    EFC

    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

    European Union

    Eurostat

    Statistical Office of the European Communities (EU)

    FDI

    Foreign direct investment

    FEER

    Fundamental equilibrium exchange rate

    FRER

    Fundamental real exchange rate

    FSAP

    Financial Sector Assessment Program (IMF–World Bank)

    FSSA

    Financial System Stability Assessment (IMF)

    GDP

    Gross domestic product

    GEM

    Global Economic Model (IMF)

    GFS

    Government Finance Statistics (IMF)

    GFSM

    Government Finance Statistics Manual 2001 (IMF, 2001)

    GLS

    Generalized least squares

    GMM

    Generalized matrix of moments

    HP

    Hodrick-Prescott

    IIP

    International investment position

    IRF

    Impulse response function

    MF

    Mundell-Fleming

    MULTIMOD

    Multiregion Macroeconomic Model (IMF)

    NATREX

    Natural real exchange rate

    OCA

    Optimum currency area

    OECD

    Organization for Economic Cooperation and Development

    OLS

    Ordinary least squares

    PAYG

    Pay as you go

    PPP

    Purchasing power parity

    REER

    Real effective exchange rate

    RER

    Real exchange rate

    SGP

    Stability and Growth Pact (EU)

    SITC

    Standard International Trade Classification

    SNA

    System of National Accounts 1993 (EC and others, 1993)

    SVAR

    Structural VAR

    TEF

    Taylor efficiency frontier

    TFP

    Total factor productivity

    ULC

    Unit labor costs

    UN

    United Nations

    UNDP

    United Nations Development Program

    VAR

    Vector autoregression

    VAT

    Value-added tax

    VECM

    Vector error correction model

    VSTFF

    Very short-term financing facility (ECB)

    WEO

    World Economic Outlook (IMF)

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