Since the early 1990, when the Reserve Bank of New Zeeland instituted for the first time inflation targeting (IT) as its monetary policy framework, IT gained reputation, becoming the monetary regime ...of choice of many central banks around the world. Among them, the National Bank or Romania changed in mid-2005 the strategy of the monetary policy with IT. As a member of the European Union, Romania’s ultimately aspiration is the adoption of the euro as a means to achieve its objective of full participation in the European Monetary Union. In order to accomplish that, among other nominal and real convergence criteria, Romania must spend at least two years in the ERM II, keeping its exchange rate towards the euro stable, inside a band of ±15%. The purpose of this paper is to identify the challenges of direct IT implementation in Romania in the current context with the perspective of joining the ERM II. We will find out that IT, as current monetary policy strategy, is to be maintained at least until the ERM II entry. After that the NBR’s focus will shift back from price stability to exchange rate stability, and thus, a strict IT framework will not be appropriate anymore (the co-existence of IT with an explicit exchange rate objective being quite problematic). The paper concludes that a soft version of inflation-targeting is more appropriate under the given circumstances.
New member countries, including the Slovak Republic, were given a status of the member state with derogation of accepting the euro. Term of the Euro zone entry will depend on the fulfilment of the ...Maastricht criteria, including the criterion on exchange rate. This assumes at least two years in the ERM II system. The article explains the basis and rules of functioning the exchange rate mechanism ERM II, requirements for fulfilment of the Maastricht criterion on exchange rate, effects of staying in the ERM II system and the strategy of the entry of new EU-member states into this mechanism. At the end, author discusses the time of the Slovak accession to the ERM II and adoption of the euro.
As the pressure of the currency consolidation increased in the years 1990, the world became aware that the world currency system, with 178 separate national currencies, became too costly, both for ...the domestic economies and for the world economy. The high costs and great vulnerability of the national currencies determined the financial and economic business of small open economies to move into the major currencies of the world. The euro is the first great success of a regional currency with a large potential in the international finance. Romania needs to overcome many problems to get through the stages required for the euro adoption. They range from the problem of standardising the macro and micro economic policies and adjusting the business cycle in line with the business cycle of the euro zone to the problem of putting on track the role and the functions of the national central bank according to the Eurosystem standards, of the preparing to join to the Exchange Rate Mechanism II and to meat the convergence criteria. Romania must very seriously get prepared in a shorter period of time for the advantage of adopting the euro and also for losing inter alia its national monetary policy and capital markets.
In this paper a PPI based real effective equilibrium exchange rate for the Slovak koruna is estimated using BEER method. This method rests upon finding a long-term relationship between a real ...exchange rate and other appropriately chosen economic fundamentals. Such exchange rate is called a behavioural equilibrium exchange rate (BEER). Knowledge of equilibrium exchange rate shed light on current standing of the Slovak koruna vis-à-vis other currencies which helps the central bank in forming appropriate monetary policies. Moreover, given that observed relationship between equilibrium exchange rate and other fundamentals will be preserved, BEER method allows estimating its future path. This can be used in determining the value of a central parity of the Slovak koruna vis-à-vis euro when Slovakia enters ERM II.
Poland is expected to enter the Exchange Rate Mechanism II (ERM II). The European Central Bank recommends that the ERM II central rate should reflect the best possible assessment of the equilibrium ...exchange rate. Since the equilibrium rate is changing in time, it is important to identify the pushing and pulling forces of the exchange rate. This knowledge will let the authorities to defend only the exchange rate that is in equilibrium and to assess outcomes of their actions. We use the VEC approach of Johansen to estimate the behavioral equilibrium exchange rate and to identify the pushing forces of the Polish zloty/euro rate. We apply the Gonzalo-Granger decomposition to calculate the permanent equilibrium exchange rate and to identify the pulling forces of the zloty exchange rate. We demonstrate that this approach may be useful for Polish authorities while entering the ERM II as well as within that mechanism.
A fixed exchange rate regime eliminates one degree of freedom in absorbing macroeconomic shocks. Therefore, there is a call for higher labor market flexibility in countries which are members of the ...monetary union or those which intend to join the monetary union. Focusing on the cross-country analysis of labor markets in the enlarged European Union, this paper aims to assess empirically the role of aggregate wages as a correction mechanism for dealing with economic disturbances. We apply classical time series/panel, state-space and cointegration techniques to determine the extent to which aggregate wages can accommodate shocks in the economy.
In this paper we estimate exchange market pressure (EMP) in four euro-candidate countries over the period 1995-2008. We apply model-dependent as well as modelindependent approach to the EMP ...estimation. Since all euro-candidates have to fulfil the exchange rate stability convergence criterion we analyze EMP in context of exchange rate arrangement and develop a continuous measure of de facto exchange rate regime. The paper provides no evidence of serious relationship between EMP and de facto regime. Therefore, the shift towards ERM II should not stimulate EMP to growth and pose an a priori threat to fulfillment of the exchange rate stability criterion.
A TEORETICAL APPROACH ON ERM II D, Assoc. Prof. Roxana Maria Nanu Ph
Analele Universitatii din Craiova. Seria stiinte economice,
2010, Volume:
2, Issue:
38
Journal Article
This article presents an overview of the European Exchange Rate Mechanism and of the effects of this mechanism on the new Member States from the point of view of the stability of the exchange rate, ...of the convergence with the macroeconomic policy and of the inflation stabilization. There will be outlined the contradictions which may appear between the preparation of the EU accession conditions and those regarding the accession to EMU, with the intermediate stage ERM II, including the effect Balassa-Samuelson. Another important element is to set the central exchange rate for ERM II because this central exchange rate will be similar or almost similar with the future exchange rate as opposed to Euro.
This paper discusses the exchange rate policies in the three stages of the euro adoption process. In the first stage, i.e., after EU accession but before ERM II entry, the exchange rate becomes a ...matter of “common concern” according to the Treaty. The paper argues that in the modern conditions, this has no real meaning besides mutual consultations on macroeconomic policy issues. In the second stage, common concern becomes institutionalized under the ERM II mechanism. Its main advantages and risks are discussed, and the arguments for minimizing the length of this stage are presented. In the third step, the exchange rate stability criterion is assessed before the country is allowed to adopt the euro. The paper discusses the open issues in the interpretation of this criterion. Finally, the current state of the Czech euro adoption strategy is described.
Czech economy has recently accelerated the real economic convergence to the European average. Nevertheless, in terms of price convergence the Czech economy is still lagging behind the expected ...dynamics, which should theoretically respond to the pace of relative economic growth. This asymmetry may (as one of many other factors) contribute to some difficulties in stabilizing Czech inflation during the two-years transition period before accession to the Euro-zone, when price convergence criterion and exchange rate stability criterion should be simultaneously met. The paper points out selected issues of the Czech nominal convergence dynamics and emphasizes possible negative impacts of restrictive monetary policy measures (pushing for low inflation rate and stable exchange rate vis-à-vis euro) on the real growth of the Czech economy. In this respect, the paper tries to find some lessons from Slovenian and Greek approach for the arrangement of the Czech monetary policy in the pre-accession period.
