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On Some Currency Regime Considerations for the Visegrad Countries

Editors: Heiduk, Günter | Horvath, Julius

Duisburger Volkswirtschaftliche Schriften, Vol. 39

(2003)

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Abstract

This volume contains, for the most part, the papers and their formal discussions presented at an International Symposium "EUFORIKZ" (EURO, FORINT, KRONE, ZLOTY), held at Gerhard-Mercator-University Duisburg, Germany, on October 26-28, 2001. The focus of the volume lies on the following two questions:

Firstly, which lessons can the Visegrad countries draw from exchange rate theory to choose the best strategy for monetary integration into the European Union? Secondly, which specific problems do the Visegrad countries face in their exchange rate policies?

The first group of papers includes discussions of the policies of the European Central Bank, a general discussion of possible alternative options for the monetary integration of the accession countries, a discussion of the optimum currency area criteria with an emphasis on the endogeneity hypothesis, a discussion of inflation targeting and the proposal for euroization. The second group of papers analyzes specific problems of Poland, Hungary, the Czech Republic and the Slovak Republic on their way towards the accession to the European Union as well as towards the fulfillment of the Maastricht convergence criteria.

Der Tagungsband enthält die Ergebnisse eines Internationalen Symposiums "EUFORIKZ", das vom 26.-28. Oktober 2001 an der Gerhard-Mercator-Universität Duisburg stattfand. Dabei standen folgende Fragen im Vordergrund des Interesses:

Erstens, was können die Visegrad Länder von der Wechselkurstheorie für ihre eigene wechselkurspolitische Strategie lernen? Zweitens, mit welchen spezifischen Problemen haben diese Länder in ihrer Wechselkurspolitik zu kämpfen?

In der ersten Gruppe der Beiträge werden Themen wie die Politik der Europäischen Zentralbank, die möglichen Alternativen für die monetäre Integration der Beitrittsländer, die Anwendung der Kriterien eines optimalen Währungsraumes unter Betonung der Endogenitätshypothese, inflation targeting sowie der Vorschlag der euroization behandelt. Die zweite Gruppe der Beiträge beschäftigt sich mit spezifischen Problemen Polens, Ungarns, der Tschechischen Republik und der Slovakischen Republik auf ihrem Weg in die Europäische Union wie auch auf dem Weg zur Erfüllung der Maastrichter Konvergenzkriterien.

Table of Contents

Section Title Page Action Price
Acknowledgement 5
Contents 7
Editors Introduction 9
Jürgen Jerger: The Monetary Policy of the ECB: Observations and Issues 13
I. Introduction 13
II. The Track Record 14
1. Inflation 14
2. Output 18
III. Policy Co-ordination in a Monetary Union 23
IV. Policy Rules for the ECB 27
1. Transparency 27
2. Voting Rules 28
3. Which Monetary Policy Strategy for the ECB? 29
V. Concluding Remarks 31
VI. Ansgar Belke: Comment 32
References 41
Peter Backé / Cezary Wójcik: Alternative Options for the Monetary Integration of Central and Eastern European EU Accession Countries 47
I. Introduction 47
II. The Cost Side 51
III. The Benefit Side 56
IV. Conclusion 60
V. Volker Clausen: Comment 60
1. Optimal Timing of the Adoption of the Euro 62
2. Suggestions for Further Research 64
References 65
Jarko Fidrmuc: The Endogeneity of the Optimum Currency Area Criteria, Intraindustry Trade and EMU Enlargement 69
I. Introduction 69
II. The Optimum Currency Area Theory 71
1. Endogeneity of Optimum Currency Area Criteria 71
III. Trade Integration and Business Cycles 73
1. Intraindustry Trade and Business Cycles 75
2. Sensitivity Analyses 77
IV. The Endogeneity Hypothesis of OCA Criteria and the EMU Enlargement 79
V. Trade Integration Between EU and CEECs 80
VI. Observed Convergence of Business Cycles in the EU and the CEECs 82
VII. Indices of Endogenous Optimum Currency Area 84
VIII. Conclusion 85
IX. Shin-Ichi Fukuda: Comment 87
References 91
Christopher Klisz: Are the Inflation and Exchange Rate Targets for Joining the European Single Currency Inconsistent? 95
I. Introduction 95
II. The Supply Side 97
III. The Domestic Price Level and Real Domestic Product 99
IV. General Equilibrium Conditions for Determining Nominal Prices 102
V. Cross-Country Cost of Living Index and the Nominal Exchange Rate 105
VI. The H-B-S Effect and the Maastricht Convergence Criteria 106
VII. Policy Implication for Accession Countries 109
VIII. Comment to the Paper by Christopher Klisz 110
References 111
Julius Horvath: Comments on Unilateral Euroization 113
I. Introduction 113
II. Discussion on Unilateral Euroization 115
1. Proponents of Unilateral Euroization 115
2. Opponents of Unilateral Euroization 119
III. Some Additional Comments 121
IV. Conclusion 123
V. Rainer Schweickert: Comment 124
References 127
Adam Budnikowski / Rafal Wielqdek: Polish Economy of 1990s in Perspective of the Convergence Criteria 129
I. Introduction 129
II. Inflation 130
III. Interest Rates 135
IV. Budget Deficit 136
V. Public Debt 140
VI. Exchange Rate Policy Evolution 144
1. The Zloty’s Convertibility and the Liberalization of Capital Flows in Poland 144
2. Exchange Rate Mechanisms 147
VII. Conclusion 151
VIII. Andrzej Kaźmierczak: Comment 152
Kàlman Dezséri: Exchange Rate Regime of Hungary and Approaching EMU Membership 155
I. Exchange Rate Policy in the Transition Economies – EU Enlargement and Joining EMU 155
II. Exchange Rate Regime of Hungary 157
III. Hungary’s Official View on Exchange Rate Regime Approaching EMU 159
IV. Economic Rationality 163
V. Volatility of Capital Flows and Exchange Rate Regime 164
VI. Inflation and the Exchange Rate Regime in Hungary 168
VII. Conclusion 171
VIII. Harald Sander: Comment 172
References 175
Josef Pöschl: Implications of the Introduction of Euro. The Case of the Czech Republic 177
I. Introduction 177
II. GDP Growth Rates as an Indication of the Strength of the Real Sector 179
III. Relations with the Rest of the World as Another Aspect of the Real Sector’s Strength 181
IV. Low Prices and Wages Compared to the EU to Attract Export-Oriented Foreign Direct Investment 182
V. Structural Problems 185
VI. Czech Monetary and Fiscal Policy 185
VII. The Czech Economy After the Introduction of Euro 186
VIII. Luboš Komárek: Comment 189
References 191
Julius Horvath: On Currency and Exchange Rate Regime. Example of Slovakia 193
I. Introduction 193
II. Political Economy Approach 194
III. Some Theoretical Considerations 197
IV. Implications for the Slovak Exchange Rate Regime 200
V. Conclusion 205
VI. Bas van Aarle: Comment 206
References 207
Contributors and Discussants 211