Lessons from the Euro Zone Experiences for the CEE Entrants
The unexpected phenomenon in functioning of the euro zone was relatively rapid competitiveness differentiation among the member countries. In some of the euro zone countries the main factor that contributed to the deterioration of their international competitiveness was the negative feedback loop between low level of real interest rate and unsustainable credit boom. The experiences of Spain and Ireland illustrate that unsustainable credit booms are possible also in case of these monetary union members that are highly advanced in real convergence and succeeded both in liberalizing their labor markets and keeping budgets in balance. In the case of the Central and Eastern European (CEE) catchingup economies the risk of a fall in real interest rates that might trigger unsustainable credit boom is augmented by inflationary pressures stemming from the Balassa-Samuelson effect (BSE) and the convergence of their price levels towards the average euro zone level. The important lesson from the euro zone experiences for the CEE countries is the necessity to tighten banking supervision in order to shield their economies against the risk of an unstable lending boom after joining the euro zone.(original abstract)
- Ahearne, A., Delgado, J., Von Weizsacker, J., A Tail of Two Countries, “Breugel Policy Brief”, June 2008.
- Alesina, A., Giavazzi, F., The Future of Europe: Reform or Decline. The MIT Press, Cambridge, Massachusetts, London, 2006.
- Analysis of the Czech Republic’s Current Economic Alignment with the Euro Area, Czech National Bank, 2009.
- Arghyrou, M. G., Chortareas, G., Real exchange rates and current account imbalances in the Euro Area, “Review of International Economics”, Vol. 16, Issue 4, pp.747-764, September 2008.
- Balassa, B, The Purchasing-Power Parity Doctrine: A Reappraisal, “Journal of Political Economy”, No. 6/1964.
- Baldwin, R. E., In or out: does it make a difference?, mimeo, May 2006.
- Belke, A., Gros, D, Instability of the Eurozone? On Monetary Policy, House Prices and Structural Reforms, “Hohenheimer Diskussionsbeitrage” Nr. 271/2006, Universität Hohenheim, Stuttgart, 2006.
- Blanchard, O., Giavazzi, F., Current Account Deficits in the Euro Area. The End of the Feldstein-Horioka Puzzle?, “Brookings Papers on Economic Activity”, 2, pp. 147-186, 2002.
- Blanchard, O., Adjustment within the euro. The difficult case of Portugal, “Portuguese Economic Journal”, Vol. 6, No. 1 April 2007.
- Brown, M., Peter, M., Wehrmüller, S., Swiss Franc Lending, “Aussenwirtschaft; Zeitschrift für internationale Wirtschaftsbeziehungen”, pp. 167-181, June 2009.
- Brzoza-Brzezina, M., Lending booms in the new EU member states – will euro adoption matter? “Working Paper Series”, ECB, No. 543/2005.
- Brzoza-Brzezina, M. Chmielewski, T. Niedźwiedzińska, J., Substitution between domestic and foreign currency loans in Central Europe. Do central banks matter. Paper for the conference Monetary Policy Challenges Resulting from the Rapid Credit Growth in Converging Economies, National Bank of Poland, Warsaw. November 22, 2007.
- Buiter, W. H., Grafe, C., Anchor, Float or Abandon Ship: Exchange Rate Regimes for Accession Countries, “CEPR Discussion Paper”, No. 3184/2002.
- Buiter, W. H., An Attendant Godot? Financial instability risk for countries targeting Eurozone membership, CEPR/ESI 8th Annual Conference: EMU Enlargement to the East and West, Hungarian National Bank, Budapest, September 24-25, 2004.
- Bun, M. J. G., Klaassen, F., J., Has the Euro Increased Trade?, “Tinbergen Institute Discussion Paper”, 08/2/2002.
- Calmfors, L., Fiscal Policy to Stabilise the Domestic Economy in the EMU: What Can We Learn from Monetary Policy, “CESifo Economic Studies”, Vol. 49/2003.
- Christodoulakis, N., Ten years of EMU: convergence, divergence and new policy priorities, The European Institute, “GreeSE Paper” No. 22, London School of Economics, January 2009.
- Danniger, S., Joutz, F., What Explains Germany’s Rebounding Export Market Share?, “IMF Working Paper”, 24/2007.
- Darvas, Z., Szapary, G., Euro Area Enlargement and Euro Adoption Strategies, “Discussion Paper” Mt-DP-2008/24, Institute of Economics, Hungarian Academy of Science, Budapest 2008.
- De Grauwe, P., On Monetary and Political Union. Paper prepared for the CESifo Workshop on “Enlarging the Euro Area”, November 24, 2006.
- De Grauwe, P., Schnabl, G., Nominal versus Real Convergence with Respect to EMU Accession: How to Cope with Balassa-Samuelson Dilemma, “EUI Working Papers”, No. 20/2004.
- De Grauwe, P., Mongelli, F. P., Endogeneities of Optimum Currency Areas. What Brings Countries Sharing a Single Currency Close Together?, “ECB Working Paper” No. 468, April 2005.
- Dobrinsky, R., Catch-up inflation and nominal convergence, “Economic Systems” No. 30, 2006.
- Dullingham, A. J., Evolution of France’s European Monetary Diplomacy. Paper prepared for the Fourth Biennial International Conference European Community Studies Association; Charleston, South Carolina USA, May 11-4, 1995. http://aei.pitt.edu.
- Egert, B., Mihaljek, D., Determinants of house prices in central and eastern Europe, “BIS Working Papers”, No. 236, September 2007.
- Egert, B., Backe, P., Zumer, T., Private sector credit in central and eastern Europe: new (over)shooting stars?, “Comparative Economic Studies”, Vol. 49/2007, p. 201-231.
- Eichengreen, B.,. Steiner, K., Is Poland at Risk of a Boom-and-Bust Cycle in the Run-Up to Euro Adoption? Paper for the conference Common Currency and Its Future: Lessons for the New Member States, NBP, Warsaw, October 2008.
- Estrada, E., Jimeno, J. F., Malo de Molina, J. L., The Spanish Economy in EMU: The First Ten Years, “Documentos Ocasionales” No. 0901, Banco de Espana, 2009.
- Financial Services Authority, Mortgage Market Review, “Discussion Paper”, 09/3, London 2009.
- Frankel, J. A., Rose, A. K., The Endogeneity of the Optimum Currency Area Criteria, “The Economic Journal” 108, July 1998.
- Garcia-Herrero, A., Fernandez de Lis, S., The Housing Boom and Bust in Spain: Impact of the Securitization Model and Dynamic Provisioning, “BBVA Working Papers”, September 2008.
- Gerald, J. F., Managing an economy under EMU: The Case of Ireland, The Economic and Social Research Institute, mimeo, May 2005.
- Gros, D., Convergence or divergence for the euro laggards? Centre for European Studies (CEPS), Brussels, July 2006.
- Gros, D., Will EMU survive 2010?, The Centre for European Policy Studies, January 2006, www.ceps.be/wp.php?article_id=503.
- Herzberg, V., Watson, M., Economic Convergence in South-Eastern Europe: Will The Financial Sector Deliver, SUERF-The European Money and Finance Forum, Vienna 2007.
- Hoeller, P. Rae, D., Housing Markets and Adjustment in Monetary Union, OECD, “Economics Department Working Paper” No. 550, April 17, 2007.
- Honohan, P., The Case of Ireland. Presentation for Bank of Slovenia conference Small Countries Coping with EMU, Ljubljana, October 26, 2006 www.bsi.si/en.
- Honohan, P., Leddin, A. J., Ireland in EMU: More Shocks, Less Insulation?. Paper presented at the conference Macroeconomic Perspectives, USD, Dublin, October 7, 2005.
- Horn, G., Logeay, C., Rietzler, K., Much Ado about Nothing? Recent Labor Market Reforms in Germany – a Preliminary Assessment, “Management Revue”, Vol. 19, Issue 3, p. 161-178, 2008.
- Ingves, S., Housing and Monetary Policy – a view from an Inflation Targeting Central Bank, A speech during the Kansas City Federal Reserve Bank conference Housing, Housing Finance and Monetary Policy. Jackson Hole, Wyoming, August 2007.
- Landmann, O., EMU@10: Coping with Rotating Slumps, University of Freiburg, Department of International Economic Policy “Discussion Paper” No. 9, July 2009.
- Lane, P. R., Setting a Course for Irish Fiscal Policy, Economic and Social Research Institute, Budget Perspectives 2009 Conference, October 7th 2008, www.esri.ie.
- Lopez-Salido, J. D., Sinn,. H-W., Restoy, F., Inflation Differentials in EMU: The Spanish Case, Banco De Espana, Documents de Trabajo, No. 0514, 2005.
- Muellbauer, J., The U.K. and the Euro – The Role of Asymmetries in Housing and Credit Market. (in): Submissions on EMU from leading academics, HM Treasury 2003.
- Van den Noord, P., Tax Incentives and House Price Volatility in the Euro Area, “OECD Economic Department Working Paper” No. 356, 2003.
- Pisani-Ferry, J., Agnion, P., Belka, M., Von Hagen, J. Heikensten, L. Sapir, A., Coming of age: Report on the euro area, Breugel Blueprint Series, pp. 5-60, Brussels, 2008.
- Rose, A., One Money, One Market: Estimating the Effect of Common Currencies on Trade, “Economic Policy” 30/2000.
- Roubini, N., Parisi-Capone, E., Menegatti, Ch., Growth Differentials in the EMU: Facts and Considerations, “RGE Monitor”, June 2007.
- Royo, S., The Euro and Economic reforms: The Case of Spain?, Paper for the conferenceEuro and the Dollar, University of Miami, April 25, 2006.
- Samuelson, P., Theoretical Notes on Trade Problems, “Review of Economics and Statistics”, 64/1964.
- Sinn, H-W., Pathological Export Boom and the Bazaar Effect. How to Solve the German Puzzle?, “CESifo Working Paper” No. 1708, October 2005.
- Sławiński, A., Ryzyko utraty kontroli nad wysokością realnej stopy procentowej w systemie izby walutowej [The risk of losing control over the level of real interest rate in a currency board system], „Ekonomista”, 2/2007.
- Scandinavia Today: An Economic Miracle? The EEAG Report on the European Economy 2007.
- IMF, Spain, Article IV Consultation, Washington D.C. 2008.
- Wyplosz, Ch., Fiscal Policy: Institutions versus Rules, “National Institute Economic Review” No. 191, 2005.