Bojesteanu, Elena; Bobeica, Gabriel; Costica, Ionela
January 2007
11th International Conference on Finance & Banking: Future of th;2007, p120
Conference Paper
In line with the Optimum Currency Area (OCA) theory, the paper analyses the degree of shock synchronicity between the euro area and the two newest member states (NstMS) of the European Union, Bulgaria and Romania. The degree of synchronization between the shocks that affect an economy is seen as a "meta-prerequisite" for entering a common monetary zone with minimum costs, a criterion that includes several others. The empirical literature knows only a few studies that include these two economies, and this was mainly due to the lack of reliable and long enough data series and to the numerous institutional changes inherent to the transition period. Using data from the two national banks, as well as Eurostat, we construct an integrated empirical framework that allows us to analyse the correlation between demand, supply and monetary shocks in Romania and Bulgaria on one side, and the euro zone on the other. We employ the popular Vector Autoregressive (VAR) technique and we identify the specified models using long-run restrictions á la Blanchard and Quah (1989). Using both static and dynamic correlation measures, our findings suggest that the two newest member states don't behave as a homogenous group, Bulgaria being more correlated with the euro area. The results are important in order to establish the position of the newest member states on the road to monetary integration, as this will be the next step after the recent accession.


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