Adoption Of Euro Research Articles

Exchange Rate Variability and Foreign Direct Investment – Consequences of EMU Enlargement

The aim of the paper is to analyze theoretically and empirically the likely impact of the reduction in exchange rate uncertainty, due to the EMU accession, on the intensity of FDI inflow into candidate countries. Theoretical models give an ambiguous picture of how exchange rate uncertainty and volatility affect direction and magnitude of FDI inflows. The main contribution of this paper is in finding that exchange rate uncertainty and volatility may negatively influence the decision to locate investment in transition and accession countries. Nominal exchange rate uncertainty seems to particularly hamper FDI inflows in accession countries. The key finding of this paper is that euro adoption is likely to exert a positive influence on FDI inflows in accession countries.

One Currency, One Price? Euro Changeover‐Related Inflation in Estonia

AbstractThis article investigates euro changeover‐related inflation using disaggregated price‐level data. The differences‐in‐differences approach is used, and the control group for the treatment country, Estonia, is built from 12 eurozone countries. The Nielsen Company disaggregated price data are employed at product, brand and shop‐type levels. The results indicate that while the overall inflationary effect of euro adoption was modest, the effects were significantly different across various market segments. Changeover‐related inflation was higher for products that were relatively cheaper than the eurozone average. Inflationary effects were stronger in smaller shops.

Poland and the euro: Between lock-in and unfinished transition

In the otherwise rich debate on the eastward expansion of the Eurozone, fragmented approaches prevail, leaving several conceptual avenues of this process underexplored. The case of Poland — initially a fervent enthusiast of the euro adoption and a somewhat assertive endorser today — offers in this context an opportunity to add to the debate and deepen our understanding of the logic behind eastward expansion of the Eurozone. In what follows, Poland's prospective Eurozone entry is examined from the broader angle of the historically determined conceptual and policy-making context of systemic transition. To this end, a conceptual nexus between Eurozone expansion and transition is established and examined through the historical institutionalist perspective. It is argued that rather than being solely a function of Poland's EU membership, both the decision to adopt the euro and the attainment of real and nominal convergence are predominantly a function of the, as yet unfinished, transition process. Interestingly...

Measuring the business cycles similarity and convergence trends in the Central and Eastern European countries towards the Eurozone with respect to some unclear methodological aspects

The adoption of Euro in Slovakia since January 2009 and current world economic crises revived a debate on timing of the Euro adoption in the Czech Republic and other Central and Eastern European countries. The purpose of the article is to contribute to a discussion on the process of joining the Eurozone by the Czech Republic and other candidate countries. The paper provides an analysis of few business cycle similarity and convergence measures using different indicators and detrending techniques. Measures of business cycles similarity are ordinarily used to evaluate preparedness of candidate countries to join the Eurozone. The results indicate continuing convergence of the business cycles similarity between the candidate and Eurozone member countries. The paper also sheds some light on possible influence of selected detrending techniques upon the resultant correlations. It gives a recommendation to interpret the results of business cycles correlation measuring in the close context with used methodology. A short note on a regional approach to analyse the GDP cycles is also included in a text.

Are Reporting Incentives and Accounting Standards Substitutes or Complements in Achieving Accounting Comparability?

We find that they are complements. We subject our sample of 15 European Union (EU) countries to two regulatory changes: (i) the adoption of the common euro currency in 1999 that resulted in a convergence in reporting incentives and (ii) the subsequent adoption of International Financial Reporting Standards (IFRS) in 2005 that resulted in a convergence in accounting standards. We first document that the convergence in reporting incentives brought about by euro adoption increased financial reporting convergence, and that this convergence is driven by capital market integration rather than product market integration. To examine the interaction between reporting incentives and accounting standards, we condition the effect of IFRS adoption in 2005 on euro membership. We find greater financial reporting convergence after IFRS adoption but only in euro countries, suggesting that the convergence in reporting incentives and the convergence in accounting standards act as complements. We also find that both capital market and product market integration contribute to the complementarity between incentives and standards at the adoption of IFRS. Our findings are relevant to academics as well as regulators evaluating the implications of convergence in accounting standards around the world.

The Propensity to Exports and the Membership in the Economic and Monetary Union of Central and Eastern European Countries: The Micro-Econometric Firm Level Analysis

There are many studies aiming at estimation of aggregate trade effects of the euro adoption by the old EU countries, which are based on the gravity model. In contrast to the existing literature we investigate whether the adoption of the common currency increases the export activity of individual firms. In particular, we refer to the new strand in the trade theory, based on the Melitz (2003) model, in which propensity to export depends on productivity and costs of exporting. There are many empirical studies, based on firm level data, showing the relevance of the Melitz (2003) model. Most of those studies demonstrate that export performance positively depends on firms’ characteristics, but they do not take into account the impact of the common currency on the cost of exporting. There are only few studies analyzing implications of euro adoption for firms’ exports of “old EU” members. In our empirical paper we use the firm level data basis set up by the EBRD and the World Bank. Using the probit model we analyze whether the accession of Slovenia and Slovakia to the Eurozone did increase the firms’ propensity to export in those countries.

The dynamics of the trade balance and the terms of trade in Central and Eastern European countries

In this work, we assess the existence of an S-Curve pattern in 10 Central and Eastern European countries (CEEC-10) for the relation between the trade balance and the terms of trade. Empirical results support the existence of this curve for Slovenia and Hungary. In the case of Bulgaria, the Czech Republic, and Slovakia the pattern is weaker, but it still prevails, as is the case for an aggregate of the 10 transition countries. We then document this property of business cycles in the dynamic general equilibrium trade model of Backus et al. (1994), calibrated specifically to match the CEEC-10 aggregate economy. Results support the existence of an S-Curve, except when technology shocks are absent and domestic and imported goods are perfect substitutes. Since technological shocks are determinant in explaining the S-Curve pattern and transition countries seem to be experiencing some type of technological shocks, it is not likely that this pattern will fade away in the near future and hence it is important for economic policy to be aware of this phenomenon and its consequences for these countries in terms of real convergence and the timing of euro adoption.

European integration and corporate financing

This paper explores the importance of supply of capital for corporate financing. To identify this relation, we examine the impact of two exogenous events, entry to the EU and the adoption of Euro, which caused shifts in equity and credit markets during European integration. Following membership to EU, which eased access to equity capital, firms increase equity financing. Firms increase debt financing after the adoption of Euro, which improved access to international debt capital. We control for globalization, ongoing developments in equity and credit channels, firm characteristics, and the moderating effects of the country of origin.

The European Banking System Before and After the Crises

The European banking system is not isomorphic. The differences can be traced to the differences in their local economy development, legal origin, ownership status, corporate governance system, etc. The 2008 crises has found the banking system of Europe in a transition status. The adoption of Euro, the establishment of the European Central Bank, the Basil III initiative, the adoption of legal isomorphism as policy in E.U., and finally the crises have been creating a unique environment for the banking system. The paper will address the issue of convergence of the banking system in Europe using a set of data from 27 countries of Europe. The analysis shows that the banks haven't changed their financial and ownership structure. Some changes in strategy are not adequate to formulate the opinion that the banking sector in Europe is different than the one before it.

The European banking system before and after the crises

The European banking system is not isomorphic. The differences can be traced to the differences in their local economy development, legal origin, ownership status, corporate governance system, etc. The 2008 crisis has found the banking system of Europe in a transition status. The adoption of Euro, the establishment of the European Central Bank, the Basil III initiative, the adoption of legal isomorphism as policy in E.U., and finally the crises have been creating a unique environment for the banking system. The paper will address the issue of convergence of the banking system in Europe using a set of data from 27 countries of Europe. The analysis shows that the banks haven’t changed their financial and ownership structure. Some changes in strategy are not adequate to formulate the opinion that the banking sector in Europe is different than the one before it.

中東欧のEU新規加盟国とユーロ

First, this paper considers the impact of the global financial crisis on new EU Member States (NMS) from Central and Eastern Europe. In the case of Slovenia, the best performer among the NMS, the situation has been very serious. Second, the mechanism of the crisis in Slovenia is examined in detail. Since the EU accession in May 2004, especially the adoption of the ERM II in June in the same year, in the financial area barriers between the Eurozone economy and the Slovenian economy practically disappeared. The sovereign risk premium decreased. Domestic banks borrowed a huge amount of funds at international wholesale financial markets and actively financed companies’ ambitious investments. Financial authorities in the country were not alert to cross-border movement of a huge amount of capital. Due to the Lehman shock, however, international financial markets became tight suddenly and demands in the Western markets sharply decreased. The direction of international financial flows reversed. The banking sector was obliged to dispose a huge amount of non-performing loans and recorded negative pre-tax profit for consecutive three years since 2010. One of the reasons why the Slovenian economy fell into such a serious crisis is that domestic banks increased their borrowings abroad too quickly within a short time from 2005 through 2008. In addition, there were the following circumstances: 1) the second wave of privatization of state-owned companies was implemented on the method of Management Buyout from 2006 and domestic banks gave loans to managers. Unfortunately, this was done immediately before the Lehman shock; 2) the weight of foreign-owned banks has been smaller in this country. In other NMS foreign-owned banks have been predominant in the banking sector, and their parent banks managed to support their affiliates in the global financial crisis. In contrast, in the case of Slovenia, the government has been required to inject fresh capitals into domestic banks to protect the banking system. The type of Slovenian crisis is different from that of the Greek crisis and the Cypriot crisis. Finally, the paper considers the significance of euro for NMS from Central and Eastern Europe. The NMS, which have not adopted euro yet, will sooner or later advance toward the adoption of euro. After joining the Eurozone, these countries will be required to steer their economic policies cautiously on the basis of lessons from Slovenia’s failure.

One currency, One Price? Euro Changeover-Related Inflation in Estonia

This paper studies euro changeover-related inflation using disaggregated price level data. The difference-in-differences approach is used and the control group for the treatment country, Estonia, is built from 12 euro area countries. The Nielsen Company disaggregated price data are employed at product, brand and shop-type level. The results indicate that while the overall inflationary effect of euro adoption was modest, the effects were significantly different across various market segments. Changeover-related inflation was higher for products that were relatively cheaper than the euro area average. Inflationary effects were stronger in smaller shops. JEL Classification: D49, P46, E58

Influences of the Global Crisis on the Monetary Transmission and Optimum Substitution between the Romanian Leu and Euro

The current economic and financial crisis has exerted an increasing impact on the monetary transmission also in the emerging economies. Firstly, this paper aims at highlighting the effects of the turbulences on the Romanian monetary policy framework, on the basis of a theoretical approach. Secondly, the data covering the period January 2008-December 2012 will be used to observe and explain the evolution of the empirical optimum of the monetary substitution between leu and euro. The study case will be based on the Uncovered Interest Parity theory and consider also the cases of the Czech Republic, Hungary and Poland. The results will allow identifying the main recent mutations in the monetary transmission and substitution in Romania and their implications in the perspective of euro adoption as well as to compare with results obtained for the neighbour countries.

The Impact of the Common Currency on Exports of New EMU Members: Firm-level Evidence for Slovenia and Slovakia

There are many studies aiming at estimation of aggregate trade effects of the euro adoption by the old EU countries, which are based on the augmented gravity model. In contrast to the existing literature, we investigate whether the adoption of the common currency increases the export activity of individual firms. In particular, we refer to the new strand in the trade theory literature, based on the Melitz (2003) model, in which export performance depends on labor productivity and costs of exporting. There are already many empirical studies, based on firm level data, showing the relevance of the Melitz (2003) model. Most of those studies demonstrate that export performance positively depends on firms’ characteristics such as labor productivity, spending on R&D, age of the firm, the stock of human capital or propensity to innovate, but they do not take into account the impact of the common currency on the cost of exporting. There are only few studies analyzing trade implications of euro adoption for firms’ exports of “old EU” members. In our empirical paper we use the firm level data basis set up by the EBRD and the World Bank for Central and Eastern European Countries. Using the probit model, we analyze whether the accession of Slovenia and Slovakia to the Eurozone did increase the firms’ propensity to export in those countries.

Energy demand, emissions forecasts and mitigation strategies modeled over a medium-range horizon: The case of the land transportation sector in Metro Manila

Transportation contributes to resource depletion and has other negative impacts on the environment. The present study presents models of energy demand and environmental emissions for the land transportation sector in Metro Manila, Philippines from 2010 to 2040 using the “Long Range Energy Alternatives Planning (LEAP)” tool. The study projected energy demand and CO2, CO, HC, NOx and PM10 emissions for Business-As-Usual (BAU) and alternative scenarios and compared the results while aiming to determine optimal transportation policies to reduce energy demand and emissions. The results indicated that the adoption of EURO 4 emission standards provides the greatest reduction in energy use at 10.8%, while the best cases for the various gas emissions were split among different options. In addition, a combination of all of the alternatives is expected to lower energy use by 27.8% and to reduce CO2, CO, HC, NOx and PM10 by 30.3%, 60.3%, 59.0%, 48.2% and 66.4%, respectively. The analytical framework employed herein could be applied to other cities to evaluate and prioritize strategies to reduce future energy requirements and emissions.

A latent class analysis of the public attitude towards the euro adoption in Poland

Latent class analysis can be viewed as a special case of model–based clustering for multivariate discrete data. It is assumed that each observation comes from one of a number of classes, groups or subpopulations, with its own probability distribution. The overall population thus follows a finite mixture model. When observed, data take the form of categorical responses—as, for example, in public opinion or consumer behavior surveys it is often of interest to identify and characterize clusters of similar objects. In the context of marketing research, one will typically interpret the latent number of mixture components as clusters or segments. In fact, LC analysis provides a powerful new tool to identify important market segments in target marketing. We used the model based clustering approach for grouping and detecting inhomogeneities of Polish opinions on the euro adoption. We analyzed data collected as part of the Polish General Social Survey using the R software.

Export Potential of SMEs and Euro Adoption in the Czech Republic

1. Introduction The Czech Republic is currently one of Members States with a derogation relating to euro adoption. Each member state may, at its discretion, set euro area accession date. What have official visions relating to Euro adoption been in Czech Republic so far? The draft strategy for euro area accession of 2002 talks about preparations so as to rule out year of 2007. The Government-approved Accession strategy of 2003 mentions period of 2009-2010 that was later specified to 1 January 2010. In October 2006, Government of Czech Republic decided to annul original plan of euro area accession in 2010. The new date has not been set, not even in Updated Strategy of 2007. The existing debt crisis of certain euro area member states leads to scepticism in respect of single European currency. This results in a cautious position of euro area non-member states with regard to replacement of their respective national currencies with euro. Marsh (2011) indicates causes of distrust are the pressures on EMU's existing membership (p. 4) and concludes that the enlargement of euro area has more or less ground to a halt (p. 288). The euro area enlargement is not very likely in near future. However, by joining European Union in 2004, Czech Republic automatically undertook to take part in third stage of formation of Economic and Monetary Union as well--i.e. to accept a single European currency. The commitment to adopt (sooner or later) euro still remains. The objective of this essay is to explore, what impact may be expected from euro adoption on exports of small and medium sized enterprises (SMEs 2). The first part mainly explains general impact of a common currency adoption on exports of companies (trade and its component, Rose Effect). The second part specifically addresses SMEs in Czech Republic. The essay relies on existing literature dedicated to expected impacts of a monetary union accession. With regard to general theoretical literature, this namely concerns Baldwin, Wyplosz (2006) and De Grauwe (2007). The effects of a single currency on mutual trade of monetary union members are discussed in a number of papers. The primary one is study entitled One Market, One Money (Commission, 1990). Furthermore, it namely concerns working papers of European Central Bank (e.g. Mongelli, Vega, 2006). The consequences of ten years of euro existence are summed up in European Commission study EMU@10 (EC, 2008). The expected impacts of monetary integration on Czech companies are namely discussed in analysis of Ministry of Industry and Trade (2006) and Lacina et al. (2008). 2. Impact of Single Currency Introduction on Exports One of expected benefit of a single currency adoption will be stimulation effect on international trade (so-called trade effect): [...] we review recent empirical research and endorse two conclusions: monetary do promote trade between their members but do not reduce bilateral trade between their member states and countries outside such unions (Begg et al., 2003, p. 5). Utilization of euro instead of existing national currency brings about two changes in foreign trade within trade with euro area (see De Grauwe, 2007, p. 77): 1) Certain transaction costs are eliminated, especially those associated with foreign currency management--e.g. conversion of foreign currencies, increased payment system costs associated with use of foreign currencies, costs associated with administration of other accounts (i.e. foreign exchange accounts), costs arising from more complex bookkeeping of foreign currencies, etc. The disappearance of aforementioned costs promotes competitiveness and stimulates exports. 2) The exchange rate risk and costs associated with mitigation thereof disappear. …

Ovlivňuje monetární politika konkurenceschopnost Slovenské republiky?

The aim of the article is to analyse the influence of monetary policy on the competitiveness of a country understood as the ability of a country to sell its goods and services on the international markets. The monetary policy is represented by the key interest rate, the monetary aggregate M3 and until December 2008 also the exchange rate SKK/EUR. The Trade Covering Ratio stands for the indicator of national competitiveness (import covered by export). We have focused on the situation in the Slovak Republic. The analysis has been split into two periods. The period of January 2004 - December 2008 is connected with the preparation of the country for the entrance into the eurozone. The second examined period of January 2009 - December 2012 is the period after the euro adoption. Applied econometric analysis using the linear regression of time series has confirmed the statistical significance of the monetary policy effect on the competitiveness. The monetary aggregate and the exchange rate were significant factors before Slovakia joined the eurozone. Considerable difference between the floating exchange rates period and the period of the Slovak membership in the ERM II was not detected by the analysis. The interest rate has become the significant monetary instrument influencing the competitiveness in the period after the euro adoption.

The Blundered Strategy of Euro Adoption in the Czech Republic: A ”Pre-crisis“ Retrospective

Abstract The commitment to join the eurozone in 2009-2010 was rejected by Czech Republic in 2006 at a time when signs of the eurozone crisis were not yet apparent. Nor did the prospects of failure to fulfil any of the Maastricht Convergence Criteria have any realistic basis. Real or alleged difficulties in meeting the Maastricht Convergence Criteria and attaining economic alignment with the eurozone did not serve as a mobilization factor for economic policies. Instead, these issues were perceived to offer an objective reason against euro adoption within the declared timeframe. The official stance against the euro was partly based on serious analytical and short-term forecasting errors, if not on deliberate manipulations, including an overemphasised misalignment of the Czech economy with the eurozone.

Consumer attitudes and behavior related to the adoption of euro before the changeover

PurposeThe aim of this paper is to enhance the understanding of the consumer attitudes and behaviour towards a new currency, euro, before the process of the changeover. The approach of the current study differs from most past research on the same topic as consumer attitudes are surveyed before the currency changeover, not retrospectively based on consumer recall. The research attempts to achieve the following set of objectives: to identify the general consumer attitudes towards euro and pinpoint sources of tension, resistance and uncertainty before the currency changeover process; to identify the pre‐adoption assessment of euro value scales and inflation expectations; and to identify various emotional factors related to the national and European identity in the euro adoption process.Design/methodology/approachThe data analysis of the current research adopts a qualitative methodology. To gather a full insight into the pre‐changeover attitudes, opinions, fears and hopes, a total of 29 qualitative interviews were conducted.FindingsThe results suggest that consumer attitudes and opinions towards the changeover process are multifaceted and concerns and uncertainties rise from various sources – from rational economic aspects to emotional aspects related to national identity. This research points also to the underestimated role of national pride in the process of transfer from the national currency to euro.Research limitations/implicationsThe study is one of the first attempts to research consumers before a forthcoming changeover; thus it is exploratory in its nature and has the traditional limitations of an exploratory research. Based on the initial findings, it would be possible to design a quantitative research for the subsequent countries adopting euro.Practical implicationsThe research identifies the attitudes of consumers before the changeover, outlining their doubts, fears and prejudices. The results can be used by subsequent countries adopting euro while planning their changeover strategies. The efforts of the strategy developers should be directed towards addressing the real challenges people face before the changeover.Originality/valueA distinctive contribution of this study lies in the addressing of the pre‐changeover attitudes and opinions before the currency change took place. Although there have been surveys asking respondents to recall their pre‐changeover opinions, the accuracy of the respondents' memory over time has decreased, which is why such surveys may not give a valid picture. This paper contributes to the understanding of the pre‐adoption phase in a currency changeover process as seen from the point of view of consumers.