Optimum currency areas, structural changes and the endogeneity of the OCA criteria: evidence from six new EU member states

Abstract

This article has two aims. The first aim is to assess the potential for an Optimum Currency Area (OCA) of six New Member States (NMS) of the EU (Bulgaria, the Czech Republic, Hungary, Poland, Romania and Slovakia) with the eurozone, by applying the theory of the Generalized Purchasing Power Parity (G-PPP). The second aim is to examine whether the introduction of the euro in 1999 and the policy decision of the six countries to join the eurozone, have created any forces fostering their convergence – evidence which would be in line with the theory on the endogeneity of the OCA criteria. Our findings indicate that G-PPP holds for the real exchange rates of the six NMS for the post euro period, and that the introduction of the euro and the choice of the six economies to participate in the EU did promote their integration.