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CENTRE FOR NEW AND EMERGING MARKETSDiscussion Paper SeriesNumber 19IS THERE A CASE FOR UNILATERAL EUROISATION?EVIDENCE FROM BULGARIA, HUNGARY,THE CZECH REPUBLIC AND POLANDMaurizio Michael HabibUniversity of Rome “La Sapienza”June 01*MRERGMEP WYTTSVX JVSQ XLI )76' 4VSKVEQQI 3RI )YVSTI SV 7IZIVEP# 4VSNIGX R 0 MW KVEXIJYPP] EGORS[PIHKIH 8LMW TETIV [EW [VMXXIR [LIR XLI EYXLSV [EW E VIWIEVGLIV EXXLI 7GLSSP SJ 7PEZSRMG ERH )EWX )YVSTIER 7XYHMIW r 9RMZIVWMX] 'SPPIKI 0SRHSR Contact details:%RRE 1 1EPEG ]RWOE8IP *E\ www.london.edu/cnem 0SRHSR &YWMRIWW 7GLSSP
Abstract:8LMW TETIV HMWGYWWIW XLI MWWYI SJ YRMPEXIVEP IYVSMWEXMSR r XLI YRMPEXIVEP EHSTXMSR SJ XLI IYVS EWPIKEP XIRHIV MR JSYV 'IRXVEP ERH )EWXIVR )YVSTIER 'SYRXVMIW 8LI WEQTPI GSRWMWXW SJ XLI XLVIIJVSRX VYRRIVW r XLI ' IGL 6ITYFPMG ,YRKEV] ERH 4SPERH r ERH E VYRRIV YT r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r ERH VMWO TVIQME r [LMGL EVI I\TIGXIH XS JEPP EJXIVIYVSMWEXMSR 1SVISZIV GEPJVEQI[SVO SJ EGGIWWMSR XS XLI )9 ERH )19 ERH [MXLMR XLI MRWXMXYXMSREP GSRWXVEMRXW WIX F] XLI1EEWXVMGL 8VIEX] 3R XLMW VIWTIGX )9 TSPMG] QEOIVW VIZIEPIH LSWXMPMX] XS[EVHW E L]TSXLIXMGEPHIGMWMSR XSIYVSMWIFIJSVI IRXIVMRK XLI )9 ERH )19 -R GSRGPYWMSR ER IEVP] W[MXGL XS XLI IYVSMW TVSFEFP] XSS VMWO] E GLSMGI JSV XLI ' IGL 6ITYFPMG ERH ,YRKEV] -R 4SPERH XLI FEPERGI SJGSWXW ERH FIRIJMXW SJ YRMPEXIVEP IYVSMWEXMSR MW YRGIVXEMR -R &YPKEVME YRMPEXIVEP IYVSMWEXMSR GSYPHFVMRK E RIX KEMR WMRGI MX [SYPH VITVIWIRX ER DMRWYVERGI1EKEMRWX WLSVXJEPPW SJ GVIHMFMPMX]
NON-TECHNICAL SUMMARY9RMPEXIVEP IYVSMWEXMSR MW E GSYRXV] W XSXEP VITPEGIQIRX SJ MXW HSQIWXMG GYVVIRG] F] XLI IYVS YRMPEXIVEPP] EHSTXIH EW XLI SRP] PIKEP XIRHIV ;L] WLSYPH E GSYRXV] WYVVIRHIV MXW QSRIXEV]WSZIVIMKRX] XS ERSXLIV GSYRXV] SV ERSXLIV GYVVIRG] EVIE# &IGEYWI E GSYRXV] GERRSX EX XLI WEQIXMQI LEZI JYPP JMRERGMEP MRXIKVEXMSR I\GLERKI VEXI WXEFMPMX] ERH QSRIXEV] TSPMG] MRHITIRHIRGI -R WQEPP STIR IGSRSQMIW XLI JMVWX X[S KSEPW SJXIR EVI QSVI MQTSVXERX XLER XLI XLMVH SRI 8LI GERHMHEXI GSYRXVMIW XS EGGIWWMSR XS XLI )YVSTIER 9RMSR)9EVI I\TIGXIH XS EHSTX XLI IYVSMR HYI GSYVWI EJXIV LEZMRK JYPJMPPIH XLI 1EEWXVMGLX GSRZIVKIRGI GVMXIVME ;L] WLSYPH 'IRXVEP ERH)EWXIVR )YVSTIER 'SYRXVMIW'))'WEFERHSR XLIMV GYVVIRGMIW JSV XLI IYVS)YVSTIER 9RMSR ERH )GSRSQMG 1SRIXEV] 9RMSRFIJSVINSMRMRK XLI)19 # 8LI QEMR VIEWSR MW XLEX ER IEVP]EHSTXMSR SJ XLI IYVS [SYPH [EVH SJJ XLI HERKIV SJ GYVVIRG] GVMWIW HYVMRK XLI ETTVSEGL XS )19 &] IPMQMREXMRK XLI HSQIWXMG GYVVIRG] ERIYVSMWMRKGSYRXV] [SYPH KIX VMH SJ XLI TVSFPIQ SJRSQMREP I\GLERKI VEXI ZSPEXMPMX] ERH [SYPH IPMQMREXI GYVVIRG] VMWO %WWYQMRK XLEX XLI HIJEYPXVMWO VIQEMRW YRGLERKIH E PS[IV GYVVIRG] VMWO [MPP FVMRK EFSYX PS[IV MRXIVIWX VEXIW [LMGL MRXYVR [MPP JSWXIV MRZIWXQIRX KVS[XL ERH VIHYGI XLI WIVZMGI SJ I\XIVREP ERH TYFPMG HIFX 9RMPEXIVEP IYVSMWEXMSR IRXEMPW WSQI GSWXW XSS 8LI STXMQYQ GYVVIRG] EVIE PMXIVEXYVI SJJIVW XLIXLISVIXMGEP JVEQI[SVO XS IZEPYEXI XLI GSWXW SJ XLI PSWW SJ MRHITIRHIRX QSRIXEV] ERH I\GLERKIVEXI TSPMGMIW 2IZIVXLIPIWW XLI EREP]WMW SJ GSWXW ERH FIRIJMXW SJ IYVSMWEXMSR GERRSX VIQEMR MRWMHIXLI FSYRHEVMIW SJ XLI XVEHMXMSREP STXMQYQ GYVVIRG] EVIE XLISV] 3R XLI SRI LERH XLI VIHYGXMSRMR VMWO TVIQME ERH XLI I\MWXIRGI SJ TEVXMGYPEV MRMXMEP GSRHMXMSRW WYGL EW XLI RIIH SJ MQTSVXQSRIXEV] WXEFMPMX] SV XLI TVIWIRGI SJ E PEVKI WLEVI SJ JSVIMKR GYVVIRG] HIRSQMREXIH EWWIXW MR XLIIGSRSQ] [LMGL TVIZIRXW ER IJJIGXMZI YWI SJ I\GLERKI VEXI TSPMGMIW r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
[SYPH RSX VIHYGI XLI GSWX SJ FSVVS[MRK SR XLI MRXIVREXMSREP QEVOIX -RXIVIWX VEXIW GSYPH WSEVERH XLI PEWX PMJI NEGOIX XLEX [SYPH VIQEMR XS EZSMH VIGIWWMSR [SYPH FI ER MRGVIEWI MR JMWGEPWTIRHMRK -J XLI TYFPMG HIFX VER SYX SJ GSRXVSP XLI QSWX PMOIP] VIWYPX [SYPH FI HIJEYPX -J VIJSVQWJEMPIH XLI I\TIGXIH GSWXW SJ IYVSMWEXMSR [SYPH TVSFEFP] FI PEVKIV XLER MR EPXIVREXMZI I\GLERKIVEXI VIKMQIW 8LMW TETIV XEOIW MRXS EGGSYRX EPP XLI EFSZI QIRXMSRIH JEGXSVW r STXMQYQ GYVVIRG] EVIE GVMXIVME KEMR SJ GVIHMFMPMX] PSWW SJ WIMKRMSVEKI TSXIRXMEP VIHYGXMSR MR VMWO TVIQME MR SVHIV XS IZEPYEXIXLI ETTVSTVMEXIRIWW SJ YRMPEXIVEP IYVSMWEXMSR MR JSYV 'IRXVEP ERH )EWXIVR )YVSTIER 'SYRXVMIW&YPKEVME XLI ' IGL 6ITYFPMG ,YRKEV] ERH 4SPERH '))' 8LI QEMR GSRGPYWMSR MW XLEX XLIGEWI JSV YRMPEXIVEP IYVSMWEXMSR MW [IEO MR XLI ' IGL 6ITYFPMG ERH MR ,YRKEV] )ZIR XLSYKL XLIWIX[S GSYRXVMIW HS WEXMWJ] XLI STXMQYQ GYVVIRG] EVIE GVMXIVME JSV EHSTXMRK XLI IYVS XLI] HS RSXRIIH XS MQTSVX QSRIXEV] WXEFMPMX] XS KEMR ERXM MRJPEXMSREV] GVIHMFMPMX] HS RSX TVIWIRX E LMKLHIKVII SJ TEVXMEP YRSJJMGMEP HSPPEVMWEXMSR IYVSMWEXMSR ERH WLSYPH RSX KIX ZIV] PEVKI KEMRW MR XIVQWSJ VIHYGXMSR MR VMWO TVIQME ,YRKEVMER EYXLSVMXMIW GSYPH GSRWMHIV YRMPEXIVEP IYVSMWEXMSR MJ,YRKEV] JEMPIH XS NSMR XLI )9 MR XLI JMVWX VSYRH SJ IRPEVKIQIRX ERH MRXIVIWX VEXIW WLSYPH HMZIVKIJVSQ )9 WXERHEVHW MR XLI QIHMYQ XIVQ -R 4SPERH XLI GEWI JSV YRMPEXIVEP IYVSMWEXMSR MW VEXLIV QM\IH 8LI VIEP WMHI SJ XLI IGSRSQ] HSIWRSX WIIQ VIEH] JSV XLI GLEPPIRKIW SJ IYVSMWEXMSR 4SPERH MW E QIHMYQ WM I VIPEXMZIP] GPSWIHIGSRSQ] 8LMW QIERW XLEX MRHITIRHIRX QSRIXEV] ERH I\GLERKI VEXI TSPMGMIW GSYPH LEZIXVERWMXSV] IJJIGXW SR XLI VIPEXMZI TVMGI SJ XVEHIH ERH RSR XVEHIH KSSHW ERH GSYPH IJJIGXMZIP] FIYWIH XS WQSSXL XLI IGSRSQMG G]GPI -R EHHMXMSR XLIVI MW WSQI IZMHIRGI SJ VMKMHMXMIW MR XLI PEFSYVQEVOIX VMKMHMXMIW XLEX QEOI MX PSRKIV ERH QSVI HMJJMGYPX XLI IZIRXYEP EHNYWXQIRX SJ XLI IGSRSQ]XS I\XIVREP WLSGOW 2IZIVXLIPIWW 4SPERH GSYPH PEVKIP] FIRIJMX JVSQ XLI VIHYGXMSR MR GYVVIRG]VMWO F] EHSTXMRK XLI IYVS -J XLI GSQQMXQIRX XS MQTPIQIRX PEFSYV QEVOIX VIJSVQW ERH XSGSRXEMR JMWGEP HIJMGMXW [IVI WXVSRK IYVSMWEXMSR MR 4SPERH GSYPH FI WYGGIWWJYP SXLIV[MWI MX GSYPHXYVR SYX XS FI E GSWXP] HIGMWMSR 3RP] &YPKEVME TVIWIRXW EPP XLI JEZSYVEFPI GSRHMXMSRW JSV ER IEVP] EHSTXMSR SJ XLI IYVS 7S JEV XLI GYVVIRG] FSEVH TVSHYGIH XLI WEQI VIWYPXW [LMGL EVI I\TIGXIH JVSQ IYVSMWEXMSR 2SRIXLIPIWW XLI GYVVIRG] FSEVH WYJJIVW EX PIEWX XS WSQI I\XIRX JVSQ XLI WEQI HVE[FEGOW SJ XVEHMXMSREP JM\IHTIK EVVERKIQIRXW %PP XLI KEMRW GSYPH UYMGOP] HMWETTIEV MJ XLI GVIHMFMPMX] SJ XLI TIK WLSYPHJEPXIV )YVSMWEXMSR [SYPH VITVIWIRX ER DMRWYVERGIEKEMRWX WLSVXJEPPW SJ GVIHMFMPMX] ERH XLI GSWX SJXLI PSWW SJ WIMKRMSVEKI [SYPH VITVIWIRX XLI DMRWYVERGI TVIQMYQ 3
*MREPP] MX MW MQTSVXERX XS WXVIWW XLEX )9 TSPMG] QEOIVW WXVSRKP] STTSWI ER IEVP] EHSTXMSR SJ XLIIYVS MR GERHMHEXI GSYRXVMIW *SV XLMW VIEWSR YRMPEXIVEP IYVSMWEXMSR [SYPH IRXEMP E TSPMXMGEP GSWXXLEX WLSYPH FI EHHIH XS XLI IGSRSQMG FEPERGI SJ GSWXW ERH FIRIJMXW 8LI JEVXLIV XLI HEXI SJEGGIWWMSRXSXLI)9 XLIWQEPPIVXLITSPMXMGEPGSWXVIPEXMZIIYVSMWEXMSR ERH XLI PEVKIV XLI MRXVMRWMG ZEPYI SJ WYGL ER STXMSR 4XSXLIIGSRSQMGFIRIJMXWSJ
1. Introduction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r GSYPH GLERKI XLI JMREP FEPERGI MR JEZSYV SJ ER IEVP] EHSTXMSR SJ XLI IYVS 3R XLISXLIV LERH E GSYRXV] XLEX YRMPEXIVEPP] EHSTXW E JSVIMKR GYVVIRG] EW PIKEP XIRHIV JEGIW XLI PSWW SJWIMKRMSVEKI VIZIRYIW 8LMW TETIV [MPP XEOI MRXS EGGSYRX EPP XLI JEGXSVW QIRXMSRIH EFSZI MR SVHIVXS IZEPYEXI XLI ETTVSTVMEXIRIWW SJ YRMPEXIVEP IYVSMWEXMSR r LIRGIJSVXL WMQTP]IYVSMWEXMSR MRJSYV 'IRXVEP ERH )EWXIVR )YVSTIER 'SYRXVMIW &YPKEVME XLI ' IGL 6ITYFPMG ,YRKEV] ERH4SPERH '))' 8LI TETIV MW WXVYGXYVIH EW JSPPS[W 7IGXMSR VIGSRWMHIVW XLI GYVVIRX JM\IH ZIVWYW JPI\MFPII\GLERKI VEXIW HIFEXI ERH WLS[W XLI PMQMXEXMSRW SJ XLI XVEHMXMSREP STXMQYQ GYVVIRG] EVIEETTVSEGL 7IGXMSR WIXW YT XLI XLISVIXMGEP JVEQI[SVO XS EWWIWW XLI WYMXEFMPMX] SJ XLI EHSTXMSR SJE JSVIMKR GYVVIRG] EW PIKEP XIRHIV HVE[MRK SR XLI PMXIVEXYVI SR HSPPEVMWEXMSR MR 0EXMR %QIVMGE 5
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
2. The fixed-versus-flexible exchange rates debate and the decline of the classicalOptimum Currency Area theory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l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z r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r MQTPMGMXP] MXW GSVSPPEV] XLEX JM\IHI\GLERKI VEXIW KVERX QSVI GVIHMFMPMX] XS JMWGEP ERH QSRIXEV] EYXLSVMXMIW XLER JPI\MFPI VEXIW MEZE M ERH 4EKERS 1Empirical studies on the effects of exchange rate volatility on trade did not find a strong negative relationshipbetween the two variables. Recently, Rose (2000) found that a currency union could increase trade by three times.Even though one could be sceptical about the magnitude of this effect, it is undoubted that the adoption of acommon currency reduces transaction costs and increases the transparency of any international trade activity.2The case for “tying one’s hands” by fixing the exchange rate in order to provide fiscal and monetary disciplinehas convincingly been challenged on theoretical and empirical ground by Tornell and Velasco (1995), (1998) and(2000).7
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r M I XLIWXVYGXYVEP JIEXYVIW SJ ER IGSRSQ] EVI RSX WXMPP ERH GVYGMEPP] GSYPH VIEGX XS XLI ZIV] TSPMG]HIGMWMSR XS JM\ XLI I\GLERKI VEXI EHSTX ERSXLIV GSYRXV] W GYVVIRG] SV NSMR E GYVVIRG] YRMSR -RSXLIV [SVHW XLI 3'% PMXIVEXYVI GSRWMHIVW XLI WIZIVEP GVMXIVME EW I\SKIRSYW TEVEQIXIVW ERH HSIWRSX XEOI MRXS EGGSYRX XLI [IPP ORS[R D0YGEW GVMXMUYI 0YGEW RSXIW XLEX WXVYGXYVEP QSHIPWYWIH XS EWWIWW XLI MQTEGX SJ E TSPMG] HIGMWMSR EVI RSX MRZEVMERX XS XLI TSPMG] GLERKI WJM\IHERHI\SKIRSYW]MIPHQMWPIEHMRKIZEPYEXMSRW 3Even though these are the criteria that are discussed the most in the literature, it is possible to find more refinedclassifications. See, for instance, Tavlas (1993) for a survey.8
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r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z &YMXIV T T l3'% PMXIVEXYVI LEWQEOIW E TSMRX SJ XLMW TVSFPIQ ERHWXVSRKP] EXXEGOW XLI GPEWWMGEP 3'% ETTVSEGLl8LI JEXEP JPE[ MR XLI 3'% PMXIVEXYVI MW MXW JEMPYVI XS EPPS[ TVSTIVP] JSV XLI MRXIVREXMSREPQSFMPMX] SJ JMRERGMEP GETMXEP 8LMW LEW PIH XS ER SZIVIQTLEWMW SR XLI WXEFMPMWMRK FYJJIV WXSGOTSXIRXMEPSJEQEVOIX HIXIVQMRIHRSQMREPI\GLERKIVEXI ERHEJEMPYVIXSVIGSKRMWIMXWHIWXEFMPMWMRK TSXIRXMEP - ZMI[ I\GLERKI VEXI JPI\MFMPMX] EW E WSYVGI SJ WLSGO ERH MRWXEFMPMX] EW[IPP EWSV IZIR VEXLIV XLERE QIGLERMWQ JSV VIWTSRHMRK IJJIGXMZIP] XS JYRHEQIRXEP WLSGOWSVMKMREXMRK IPWI[LIVI z4Frankel and Rose (1998, p.1010) : “We argue that a naïve examination of historical data gives a misleadingpicture of a country’s suitability for entry into a currency union, since the OCA criteria are endogenous.”5See Eichengreen (2000) for a discussion.9
'EPZS ERH 6IMRLEVX ERH 6IMRLEVX TVSZMHI ER MRHMVIGX WYTTSVX XS XLMW TSWMXMSR 8LIMV IQTMVMGEP JMRHMRKW WLS[ E [MHIWTVIEH lJIEV SJ JPSEXMRKz EQSRK XLI GSYRXVMIW EHSTXMRKJPI\MFPI I\GLERKI VEXI EVVERKIQIRXW GSQTEVIH [MXL GSQQMXXIH JPSEXIVW WYGL EW XLI 9RMXIH7XEXIW ERH .ETER 8LEX MW QER] GSYRXVMIW r TEVXMGYPEVP] IQIVKMRK GSYRXVMIW [LMGL JPSEX XLIMVGYVVIRG] ERH EVI IEKIV XS MRXIKVEXI XLIMV IGSRSQ] MRXS XLI KPSFEP JMRERGMEP QEVOIX r MR TVEGXMGIHS ETTVSZI &YMXIV W TVSTSWMXMSR XLEX I\GLERKI VEXIW JPYGXYEXMSRW VITVIWIRX ER MRHITIRHIRX ERHEZSMHEFPI WSYVGI SJ RSMWI -J ER IQIVKMRK SV XVERWMXMSR GSYRXV] r WE] E WQEPP STIR IGSRSQ][MXLSYX GETMXEP GSRXVSPW PIX XLI I\GLERKI VEXI JPSEX XLIR ER I\GIWWMZI GETMXEP MRJPS[ IVEXILMRHIVMRKI\TSVXWKVS[XL 'SRZIVWIP] E WYHHIR GETMXEP JPS[ VIZIVWEP [SYPH FVMRK EFSYX E WLEVT RSQMREP HITVIGMEXMSR [LMGL GER LEZI X[S HMWVYTXMZI GSRWIUYIRGIW *MVWX MJ XLI GSYRXV] MW STIR XS XVEHI XLI MRGVIEWIMR
2. The fixed-versus-flexible exchange rates debate and the decline of the classical Optimum Currency Area theory. 8LI TEWX HIGEHI GEQI XS ER IRH [MXL E RI[ [EZI SJ JMRERGMEP ERH GYVVIRG] GVMWIW XLEX LMX IQIVKMRK ERH XVERWMXMSR GSYRXVMIW
