DOCSLIB.ORG

Does Poland Truly Have Full Monetary Independence, As Claimed by the National Bank of Poland?

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
Does Poland Truly Have Full Monetary Independence, As Claimed by the National Bank of Poland? Does Poland truly have full monetary independence, as claimed by the National Bank of Poland? An empirical study to determine to what extend Poland has monetary independence, through an analysis of Poland’s floating exchange rate system within the framework of the trilemma. Bachelor thesis Economics and Business Economics and Finance Student: Elmer van Hilten Student number: 10107932 Supervisor: Stan Olijslagers June 26, 2018 Statement of Originality This statement is written by student Elmer van Hilten who declares to take full responsibility for the contents of this document. I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it. The faculty of Economics and Business is responsible solely for the supervision of completion of the work, not the contents. 2 Table of contents 1. Introduction 4 2. Literature review 5 2.1 Optimum Currency Area 6 2.2 Benefits and costs 7 3. Methodology and Empirical Analysis 11 3.1.1 Exchange rate system 11 3.1.2 Hamada diagram 12 3.2 Data 13 3.2.1 Data for the exchange rate system 13 3.2.2 Data for the Hamada diagram 14 3.3 Output and analysis 15 3.3.1 Output and analysis of the exchange rate system 15 3.3.2 Results and analysis of the Hamada diagram 18 4. Conclusion 19 5. References 22 6. Appendix 1 27 7. Tables 28 3 1. Introduction With the accession to the European Union in 2004, the success of the Polish 15-year transition from a planned economy to capitalistic system seemed complete (Polański, 2004). An event that initially led to celebrations, turned into scepticism over the course of a couple of years (Coomarasamy, 2016). Poland, the sixth economy of the European Union, was considered the prime example of European integration, but became the exact opposite after the conservative and mildly Eurosceptic Law and Justice Party (PiS) won the elections in 2016. Since, the Polish government has defied the European Union on multiple occasions (C., 2016). Furthermore, the Polish government is not making any progress in adopting the euro. With the signing of the Accession Treaty came also the obligation to, in time, comply to the Maastricht Treaty. In this treaty the convergence criteria are formally defined, after which the euro should be adopted as the single currency: • Price stability, to show inflation is controlled; • Soundness and sustainability of public finances, through limits on government borrowing and national debt to avoid excessive deficit; • Government debt below 60%, or tendency towards that (Belgian clause); • Exchange-rate stability, through participation in the Exchange Rate Mechanism (ERM II) for at least two years without strong deviations from the ERM II central rate (15% higher or lower than the central rate); • Long-term interest rates, to assess the durability of the convergence achieved by fulfilling the other criteria. Source: European Commission Despite these convergence criteria, Poland never became part of the ERM II. On the contrary, Poland even discontinued its pegged exchange rate to the euro and US dollar to formally adopt a floating exchange rate (Appendix 1). According to the EU authorities, the floating exchange rate is incompatible with the principles underlying the ERM II (ECB, 2003). Szapáry (2009) concludes in his paper that the economic crisis might alter the willingness of potential eurozone members to adopt the euro. Some countries would consequently expedite the participation to the single currency, whilst others would delay this process. Nevertheless, becoming a member of the eurozone is not just the stated goal of 4 countries’ authorities, but also an obligation under the EU Treaty. In the case of Poland, it would seem they are delaying the process of becoming a member of the eurozone. This process might be supported by statements of the European Union to take Poland’s voting rights in the European Counsil away (Boffey, 2017), and thus pushing Poland on a more nationalistic path. Opinion polls show a trend of declining support for the euro after 2009 (Figure 1). In 2014 a quarter of the Polish were in favor of becoming a member of the eurozone, but in March 2016, an astonishing 65% of the Polish was against joining the eurozone, whilst only 13% was in favor of joining the eurozone as fast as possible (Balcer, Buras, Gromadzki and Smolar, 2017). One of the arguments against becoming a part of the eurozone for Poland, is that the loss of monetary independence would harm the Polish economy (Carlson, Conor, Chan, Cooper, Lehner, Montgomery and Tran, 2016). Asymmetric shocks would not result into interference of the European Central Bank (ECB) and therefore Poland would be limited in its possibilities to counter these shocks (Pilbeam, 2006). In this paper an empirical test shall be done to analyze if the Polish zloty is indeed a floating currency. This shall be done through a regression in line with earlier work done by Bénassy-Quéré and Coeuré (2000) and Ogawa and Shimizu (2005). The hypothesis is that the official floating exchange regime is valid, and therefore Poland has monetary independence according to the trilemma (Figure 2). However, some papers seem to indicate that a floating exchange rate is de facto a fixed one, which is known as the fear of floating. If the latter is the case for Poland, this would question the validity of the claimed monetary independence. Afterwards the situation between the eurozone and Poland shall be illustrated within the Hamada diagram, which is used to show the potential gains from coordination of macroeconomic policies. 2. Literature review Becoming part of a monetary union has potential benefits, as well as costs (Pilbeam, 2006). This paper focusses mainly on the cost of losing monetary independence, but to assess the impact of this loss, the optimum currency area theory (OCA) needs to be discussed. Afterwards, the benefits and costs of adopting a monetary union shall be discussed, whilst analyzing the monetary independence Poland claims to have. 5 2.1.1 Optimum Currency Area In his pioneering work, Mundell (1961) discussed the optimum currency area theory, where he stressed the need for floating exchange rate mechanisms in countries facing asymmetric demand shocks, especially if these countries are unable to adjust otherwise due to wage rigidity and limited labor mobility. Subsequent work by McKinnon (1963) and Kenen (1969) extended this theory, emphasizing the need for openness and product diversification to become an OCA. This theory contains several factors which contribute to answering the question for a country when it is optimal to adopt a common currency and a common monetary policy. If the eurozone is an OCA for Poland, the potential loss of monetary independence would not outweigh the benefits of adopting the euro as a single currency. Pilbeam (2006) summarizes these criteria, whilst leaving the question if the eurozone is an OCA and if other countries should join the European Monetary Union (EMU) unanswered. Furthermore, Pilbeam states that the criteria are by no means conclusive. Multiple authors conclude that the business cycles between Central- and Eastern European countries (CEECs) and the EU (mainly Germany) are increasing, since the CEECs implemented economic reforms. In particular, studies done by Boone and Maurel (1998 and 1999) find a significant convergence between the German business cycles and select CEECs (Slovakia, Hungary, the Czech Republic and Poland) their business cycles. Boone and Maurel (1999) estimate that 55% of the Polish business cycle is explained by German shocks. This figure is admittedly lower than the German-French interdependence of business cycles, which is 91%, but nonetheless higher than the German-Spanish (43%) and the German-Italian (18%) estimates for the interdependence of business cycles. Based on this information, the authors conclude that the benefits of joining the eurozone could eventually be larger than the costs. Fidrmuc (2004) also expects, within the OCA framework, a strong tendency for CEECs to join the Economic Monetary Union (EMU). His paper shows that the business cycles of Hungary, Slovenia and, to a lesser extent, Poland are strongly correlated with the German business cycle since 1993. This means, according to Fidrmuc, that Poland possibly is close to forming an optimum currency area with the EMU and should, therefore, adopt the euro as a single currency. The author does note that the observation period was too short and characterized by too few supply and demand shocks. The author also states that asymmetric shocks are still likely in the EU and the CEECs. In sharp contrast to the previous, Krugman (2013) states that the eurozone is not an OCA, but mainly a political project. Nevertheless, he gives possible solutions to make the 6 eurozone workable, albeit still not making it an OCA; a Europe-wide backing of banks, the ECB should be a lender-of-last-resort to governments and finally, a higher inflation target. Especially the latter point is worth pointing out, since it would sound counter-intuitive to aim for a higher inflation target. The argument Krugman makes is that a higher inflation rate is needed to counter the downward nominal wage rigidity, since devaluation of the currency is not an option. This loss of national macroeconomic policy autonomy is, according to Pilbeam (2006), a major argument against the EMU. Once Poland would become a member of the eurozone, it would lose the autonomy to set its own inflation rate. Currently, the Narodowy Bank Polski (NBP) has set the inflation rate at around 2.5% (NBP, 2017), whilst the ECB aims to keep the inflation rate close to, but below 2% (ECB, 2011). At least in the short term, there is a trade-off between inflation and unemployment, known as the Phillips curve (Friedman, 1977).
Load more

Recommended publications
  • Should Poland Join the Euro? an Economic and Political Analysis
    Should Poland Join the Euro? An Economic and Political Analysis Should Poland Join the Euro? An Economic and Political Analysis Graduate Policy Workshop February 2016 Michael Carlson Conor Carroll Iris Chan Geoff Cooper Vanessa Lehner Kelsey Montgomery Duc Tran Table of Contents Acknowledgements ................................................................................................................................ i About the WWS Graduate Policy Workshop ........................................................................................ ii Executive Summary .............................................................................................................................. 1 1 Introduction ................................................................................................................................. 2 2 The Evolution of Polish Thought on Euro Adoption ................................................................. 5 2.1 Pre-EU membership reforms ...................................................................................................................... 5 2.2 After EU Accession ....................................................................................................................................... 5 2.3 Crisis years ...................................................................................................................................................... 6 2.4 Post-crisis assessment ..................................................................................................................................
    [Show full text]
  • A Report on the Costs and Benefits of Poland’S Adoption of the Euro
    A Report on the Costs and Benefits of Poland’s Adoption of the Euro Warsaw, March 2004 Edited by: Jakub Borowski Authors: Jakub Borowski Micha∏ Brzoza-Brzezina Anna Czoga∏a Tatiana Fic Adam Kot Tomasz J´drzejowicz Wojciech Mroczek Zbigniew Polaƒski Marek Rozkrut Micha∏ Rubaszek Andrzej S∏awiƒski Robert Woreta Zbigniew ˚ó∏kiewski The authors thank Andrzej Bratkowski, Adam B. Czy˝ewski, Ma∏gorzata Golik, Witold Grostal, Andrzej Rzoƒca, El˝bieta Skrzeszewska-Paczek, Iwona Stefaniak, Piotr Szpunar and Lucyna Sztaba for their numerous and insightful remarks on earlier drafts of this Report. The authors thank professor Michael J. Artis for his excellent assistance with the English language version of the Report. The Report was submitted for publishing in March 2004. Design: Oliwka s.c. Printed by: Drukarnia NBP Published by: National Bank of Poland 00-919 Warszawa, ul. Âwi´tokrzyska 11/21, Poland Phone (+48 22) 653 23 35 Fax (+48 22) 653 13 21 © Copyright Narodowy Bank Polski, 2004 2 National Bank of Poland Table of contents Table of contents Executive Summary . .5 Introduction . .9 1. Conditions for accession to the euro area . .13 2. Risks and costs of introducing the euro . .15 2.1. Loss of monetary policy independence . .15 2.1.1. The effectiveness of the exchange rate adjustment mechanism . .18 2.1.2. Labour market adjustment mechanism . .25 2.1.3. The fiscal adjustment mechanism . .27 2.1.4. Convergence of business cycles . .30 2.1.5. Endogeneity of Optimum Currency Area criteria . .36 2.2. Short-term cost of meeting the inflation convergence criterion . .37 2.3.
    [Show full text]
  • 247 – £Ukasz W
    2 4 7 £ukasz W. Rawdanowicz Poland's Accession to EMU – Choosing the Exchange Rate Parity W a r s a w , 2 0 0 2 Materials published here have a working paper character. They can be subject to further publication. The views and opinions expressed here reflect Authors’ point of view and not necessarily those of the CASE. The publication was financed by AIG Pension Society. Key words: real exchange rates, equilibrium exchange rates, EMU enlargement. Acknowledgements: I am greatly indebted to Przemek Kowalski and Mateusz Szczurek for their valuable and inspiring comments, and their help with collecting data. © CASE – Center for Social and Economic Research, Warsaw 2002 Graphic Design: Agnieszka Natalia Bury DTP: CeDeWu Sp. z o.o. ISSN 1506-1701, ISBN 83-7178-298-5 Publisher: CASE – Center for Social and Economic Research ul. Sienkiewicza 12, 00-944 Warsaw, Poland tel.: (4822) 622 66 27, 828 61 33, fax (4822) 828 60 69 e-mail: [email protected] Contents Abstract 5 1. Introduction 6 2. Concepts of Equilibrium Exchange Rate 7 2.1. PPP 7 2.2. FEER 8 2.3. BEER 9 3. Empirical Estimations 10 3.1. FEER Calculations 11 3.2. BEER Estimations 18 4. What Should Be the Entry Exchange Rate? 20 5. Conclusions 25 References 27 Statistical Appendix 29 Studies & Analyses CASE No. 247 – £ukasz W. Rawdanowicz £ ukasz W. Rawdanowicz £ukasz Rawdanowicz graduated from Sussex University in 1998 (MA in International Economics) and Warsaw University - Department of Economics in 1999 (MA in quantitative methods). His main area of interest is macroeconomics and econometrics.
    [Show full text]
  • Small and Medium-Sized Enterprises: U.S. and EU Export Activities, and Barriers and Opportunities Experienced by U.S
    United States International Trade Commission Small and Medium- Sized Enterprises: U.S. and EU Export Activities, and Barriers and Opportunities Experienced by U.S. Firms Investigation No. 332-509 USITC Publication 4169 July 2010 U.S. International Trade Commission COMMISSIONERS Deanna Tanner Okun, Chairman Charlotte R. Lane Daniel R. Pearson Shara L. Aranoff Irving A. Williamson Dean A. Pinkert Robert B. Koopman Acting Director of Operations Arona Butcher Karen Laney Acting Director of Economics Director, Office of Industries Address all communications to Secretary to the Commission United States International Trade Commission Washington, DC 20436 U.S. International Trade Commission Washington, DC 20436 www.usitc.gov Small and Medium-Sized Enterprises: U.S. and EU Export Activities, and Barriers and Opportunities Experienced by U.S. Firms Investigation No. 332-509 Publication 4169 July 2010 Project Leadership Justino De La Cruz, Project Leader [email protected] James Stamps, Deputy Project Leader [email protected] Laura Bloodgood, Office of Industries Coordinator [email protected] Principal Authors Laura Bloodgood William Greene George Serletis Nannette Christ Katherine Linton James Stamps Daniel Cook Brendan Lynch Donald Sussman Justino De La Cruz Ruben Mata Mihir Torsekar Michael Ferrantino Elizabeth Nesbitt Ralph Watkins Dennis Fravel William Powers Isaac Wohl Primary Reviewers Joanne Guth and Joanna Bonarriva Special Assistance From Tamar Asadurian William Gearhart Andrew Martinez Richard Brown Alberto Goetzl Jesse Mora Eric Cardenas Alexander Hammer Andrew Rylyk Dylan Carlson Peg Hausman Patricia M. Thomas Judith Dean Aimee Larsen Alison Weingarden Robert Feinberg Linda Linkins Linda White Office of Publishing Interns Bethany Bengfort, Daniel Mason-D’Croz, Vincent Procacci, and Danielle Trachtenberg Under the Direction of Arona Butcher, Chief Country, Regional, and Analysis Division [email protected] ABSTRACT This report examines the extent and composition of U.S.
    [Show full text]
  • A Place at the Top Table? Poland and the Euro Crisis
    Reinvention of Europe Project A place at the top table? Poland and the euro crisis By Konstanty Gebert If you want to dine at the European Union’s top table it is important to be able to count on powerful friends who can help you pull up a chair. With an economy only one quarter that of Germany’s, and a population half its size, Poland cannot and does not aspire to have a permanent chair at that top table. But neither can it – with a population accounting for half of all the 2004 enlargement states and an economy among the best-performing in a crisis-ridden EU – content itself with merely a seat at the lower table. This is the challenge facing Poland, as it seeks to follow its developing interests and make its voice heard at a time when the most powerful countries in the EU are pulling in very different directions. Poland’s position within the EU is further complicated by its straddling of several dividing lines. For instance, its future is fundamentally tied to the Eurozone club that it does not belong to but very deeply desires to participate in. It managed to assume the rotating EU presidency for the first time just as the deepest crisis to affect the Union was deepening even further. Following on from the Lisbon Treaty, however, the presidency’s influence is now much reduced, and so Poland was relegated to being a mere observer of decisions made by others, mostly over the future of the Eurozone. Poland also straddles the demographic and economic boundaries between the EU’s major players and its smaller ones (the sixth largest in both categories).
    [Show full text]
  • Financial System Development in Poland 2010
    Financial System Development in Poland 2010 Warsaw, 2012 Editors: Paweł Sobolewski Dobiesław Tymoczko Authors: Katarzyna Bień Jolanta Fijałkowska Marzena Imielska Ewelina Jaskólska Piotr Kasprzak Paweł Kłosiewicz Michał Konopczak Sylwester Kozak Dariusz Lewandowski Krzysztof Maliszewski Rafał Nowak Dorota Okseniuk Aleksandra Paterek Aleksandra Pilecka Rafał Sieradzki Karol Siskind Paweł Sobolewski Andrzej Sowiński Mikołaj Stępniewski Michał Wiernicki Andrzej Wojciechowski Design, cover photo: Oliwka s.c. DTP: Print Office NBP Published by: National Bank of Poland Education and Publishing Department 00-919 Warsaw, Świętokrzyska 11/21, Poland Phone 48 22 653 23 35 Fax 48 22 653 13 21 www.nbp.pl © Copyright by National Bank of Poland, 2012 Introduction Table of contents Introduction . 5 1 . Financial system in Poland . 6 1.1. Evolution of the size and structure of the financial system in Poland . .6 1.2. Households and enterprises on the financial market in Poland .........................14 1.2.1. Financial assets of households ...............................................14 1.2.2. External sources of financing of Polish enterprises ................................18 2 . Regulations of the financial system . 21 2.1. Changes in financial system regulations in Poland ..................................21 2.1.1. Regulations affecting the entire financial services sector ...........................23 2.1.2. Regulations regarding the banking services sector ................................26 2.1.3. Regulations regarding non-bank financial institutions .............................32 2.1.4. Regulations regarding the capital market ......................................33 2.2. Measures of the European Union regarding the regulation of the financial services sector ....34 2.2.1. Regulations affecting the entire financial services sector ...........................34 2.2.2. Regulations regarding the banking services sector ................................39 2.2.3.
    [Show full text]
  • Poland Without the Euro a Cost Benefit Analysis 2 Polityka Insight Poland Without the Euro Index
    Poland without the euro A cost benefit analysis 2 Polityka Insight Poland without the euro Index EXECUTIVE SUMMARY 2 1. POLAND’S INTEGRATION WITHIN THE EURO AREA – THE CONTEXT 6 How to adopt the common currency? 8 Survey of social opinions and political positions on euro adoption 14 Analysis of probability of euro being introduced in Poland by 2030 15 2. COSTS OF DELAYING EURO ADOPTION 16 Measurable costs 17 Potential costs 21 Non-measurable costs 25 3. BENEFITS OF DELAYING EURO ADOPTION 28 Measurable benefits 29 Potential benefits 30 Non-measurable benefits 37 4. BALANCE OF COSTS AND BENEFITS OF DELAYING EURO ADOPTION 40 Balance of measurable effects 41 Balance of potential costs and benefits 42 Balance of non-measurable costs and benefits 45 SUMMARY 47 REFERENCES 49 A cost benefit analysis Polityka Insight 1 Executive summary This report deals with the question of adopting the euro in Poland. It differs from previous such works in two respects. First, our ques- tion is not “should Poland adopt the euro?” as the EU Treaties oblige all Member States who joined the EU after the Maastricht Treaty came into force to join the eurozone. Hence, we focus on the implications of Poland's decision to delay its adoption of the common currency. Second, in contrast to previous studies we distinguish between different types of costs and benefits – we identify those which are measurable, those which are po- tential and those which are non-measurable, i.e. are of socio-political nature. In our view such a distinction is required to assess the effects of adopting the euro on the Polish economy in a way which incorporates the possible differenc- es in the preferences of decision-makers and public opinion.
    [Show full text]
  • Central and Eastern Europe in the European Union
    This work has been published by the European University Institute, Robert Schuman Centre for Advanced Studies. © European University Institute 2018 Editorial matter and selection © Michał Matlak, Frank Schimmelfennig, Tomasz P. Woźniakowski, 2018 Chapters © authors individually 2018 doi:10.2870/675963 ISBN:978-92-9084-707-6 QM-06-18-198-EN-N This text may be downloaded only for personal research purposes. Any additional reproduction for other purposes, whether in hard copies or electronically, requires the consent of the author(s), editor(s). If cited or quoted, reference should be made to the full name of the author(s), editor(s), the title, the year and the publisher Views expressed in this publication reflect the opinion of individual authors and not those of the European University Institute. Artwork: ©Shutterstock: patrice6000 The European Commission supports the EUI through the European Union budget. This publication reflects the views only of the author(s), and the Commission cannot be held responsible for any use which may be made of the information contained therein. EUROPEANIZATION REVISITED: CENTRAL AND EASTERN EUROPE IN THE EUROPEAN UNION Editors: Michał Matlak, Frank Schimmelfennig and Tomasz P. Woźniakowski In memoriam Nicky Owtram TABLE OF CONTENTS Biographies 1 Acknowledgments 4 Foreword 5 Europeanization Revisited: An Introduction Tomasz P. Woźniakowski, Frank Schimmelfennig and Michał Matlak 6 The Europeanization of Eastern Europe: the External Incentives Model Revisited Frank Schimmelfennig and Ulrich Sedelmeier 19 New
    [Show full text]
  • Poland's Reluctance to Join the Eurozone
    1 % POLICY PAPER Poland’s reluctance to join the Eurozone: why the vision of development matters Sebastian Płóciennik § Among explanations why Poland does not fulfill its obligation to join the eurozone, more attention should be devoted to the orientation of Polish capitalism, which is now in the middle of difficult transition from the model of competitiveness based on low-cost labor to competitiveness based on innovations. In recent years, the very content of this systemic change has been a rising role of the state in the economy and a more ambitious social agenda. They both can be at odds with a fast track towards the euro. 2 % Introduction monetary union might have come from the expert discussion on whether the benefits of monetary integration will be as high as promised and costs lower than feared.3 It Despite the obligation to join the eurozone, expressed is difficult to create a convincing pro-euro political narrative in the 2004 EU accession treaty, Poland remains today quite from the sophisticated exchange of arguments, including far away from adopting the common currency. It is not only the lower risk of speculation, transaction costs, risk of an issue of unfulfilled criteria for joining, but also of the higher inflation, threat of asymmetric shocks, advantages of society that perceives this step of deeper integration with monetary autonomy, etc., when what really breaks through reluctance. The polls conducted in recent years showed a to the audience is the potential problem of higher prices. prevalence of thinking that euro-membership would have more negative than positive consequences for the country This text aims at exploring a less conspicuous, but 1 (Figure 1) , and the political scene reflects this conviction.
    [Show full text]
  • Is Poland at Risk of the Zero Lower Bound?
    COLLEGIUM OF ECONOMIC ANALYSIS WORKING PAPER SERIES Is Poland at risk of the zero lower bound? Michał Brzoza-Brzezina, Marcin Kolasa and Mateusz Szetela SGH KAE Working Papers Series Number: 2016/013 July 2016 Is Poland at Risk of the Zero Lower Bound?1 Michał Brzoza-Brzezina2 Marcin Kolasa3 Mateusz Szetela4 Abstract In early 2015, the policy (open market operations) rate of Narodowy Bank Polski was reduced to an all-time low of 1.5%. At the same time, prices of consumer goods and services dropped by 1.5% in year-on-year terms. This raised concerns that Poland might become the next country to hit the zero lower bound (ZLB) constraint on nominal interest rates. The purpose of this paper is to examine the scale of this risk and its possible consequences. According to our results, the odds of the Polish economy hitting the ZLB remain low, despite having risen considerably in 2014-15. At the same time, the consequences of such a scenario would be substantial as the ZLB would amplify the economy’s responses to adverse demand shocks and make their impact more persistent. The current level of the inflation target (2.5%) protects the Polish economy against the zero lower bound to a signifficant degree. However, its potential reduction would significantly increase the likelihood that this threat materializes. JEL: E43, E47, E52 Keywords: Zero Lower Bound; Polish monetary policy; small open economy 1 The authors wish to thank Ryszard Kokoszczyński, the participants of the 4th NBP Summer Workshop and two anonymous referees for their valuable comments.
    [Show full text]
  • 247 – £Ukasz W
    2 4 7 £ukasz W. Rawdanowicz Poland's Accession to EMU – Choosing the Exchange Rate Parity W a r s a w , 2 0 0 2 Materials published here have a working paper character. They can be subject to further publication. The views and opinions expressed here reflect Authors’ point of view and not necessarily those of the CASE. The publication was financed by AIG Pension Society. Key words: real exchange rates, equilibrium exchange rates, EMU enlargement. Acknowledgements: I am greatly indebted to Przemek Kowalski and Mateusz Szczurek for their valuable and inspiring comments, and their help with collecting data. © CASE – Center for Social and Economic Research, Warsaw 2002 Graphic Design: Agnieszka Natalia Bury DTP: CeDeWu Sp. z o.o. ISSN 1506-1701, ISBN 83-7178-298-5 Publisher: CASE – Center for Social and Economic Research ul. Sienkiewicza 12, 00-944 Warsaw, Poland tel.: (4822) 622 66 27, 828 61 33, fax (4822) 828 60 69 e-mail: [email protected] Contents Abstract 5 1. Introduction 6 2. Concepts of Equilibrium Exchange Rate 7 2.1. PPP 7 2.2. FEER 8 2.3. BEER 9 3. Empirical Estimations 10 3.1. FEER Calculations 11 3.2. BEER Estimations 18 4. What Should Be the Entry Exchange Rate? 20 5. Conclusions 25 References 27 Statistical Appendix 29 Studies & Analyses CASE No. 247 – £ukasz W. Rawdanowicz £ ukasz W. Rawdanowicz £ukasz Rawdanowicz graduated from Sussex University in 1998 (MA in International Economics) and Warsaw University - Department of Economics in 1999 (MA in quantitative methods). His main area of interest is macroeconomics and econometrics.
    [Show full text]
  • Economic and Monetary Union As an Example of Differentiated Integration
    Agnieszka Piekutowska and Elżbieta Kużelewska* Economic and Monetary Union as an Example of Differentiated Integration Abstract: Despite the over 60 years’ experience with European integration (since the Paris Treaty), it remains permeated with certain distinctions and dissimilarities with respect to particular Member States. The Economic and Monetary Union (EMU) is the best example of differentiated integration, since as early as its initial construction it contained signifi cant differences vis-à-vis Member States. The third stage of the EMU (in force since 1 January 1999), the introduction of the single European currency, did not encompass all 15 Member States, but only 11 of them. Greece joined it only in 2002, and the United Kingdom and Denmark had negotiated an opt-out provision in the Maastricht Treaty. This article explores differentiated integration in the EMU framework, and presents as well the consequences for the countries outside the ‘hard core’ of currency integration, i.e. those states which are the subjects of temporary derogations and which are obliged, by their Accession Treaties, to accept the European currency in the future. Keywords: differentiation, integration, European Monetary Union (EMU) Introduction Economic and Monetary Union (EMU) is a perfect example of differentiated integration, since as early as its initial construction it contained signifi cant differences vis-à-vis the various Member States. The third stage of the EMU (in force since 1 January 1999), the introduction of * Agnieszka Piekutowska, Ph.D. – Faculty of Economics and Management, University of Bialystok, contact at: [email protected]; Prof. Elżbieta Kużelewska, Ph.D. – Faculty of Law, University of Bialystok, contact at: [email protected].
    [Show full text]