1887

OECD Economics Department Working Papers

Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.

The views expressed in these papers are those of the author(s) and do not necessarily reflect those of the OECD or of the governments of its member countries.

English, French

Estonia and Euro Adoption

Small Country Challenges of Joining EMU

Estonia gave up the exchange rate and monetary policy tools of macroeconomic management when it introduced its currency board in 1992. While the currency board arrangement served the country well during transition in the 1990s, it offers limited flexibility to implement policies that would ease the EU convergence as well as mitigate the global financial and economic crisis. The ongoing financial crisis has made euro adoption more attractive than ever and put it on the top of the country’s policy agenda. However, shocks affecting Estonia are only weakly synchronized with those of the euro area, and the structure of its economy also notably differs from the euro zone. To benefit fully from joining the EMU, Estonia must strengthen other adjustment mechanisms to shocks, including flexibility of the labour market, further improving its environment to do business and a framework, which allows for anti-cyclical fiscal policies.

English

Keywords: business cycle synchronization, structural VAR, EMU, Estonia
JEL: E42: Macroeconomics and Monetary Economics / Money and Interest Rates / Monetary Systems; Standards; Regimes; Government and the Monetary System; Payment Systems; C53: Mathematical and Quantitative Methods / Econometric Modeling / Forecasting Models; Simulation Methods; E32: Macroeconomics and Monetary Economics / Prices, Business Fluctuations, and Cycles / Business Fluctuations; Cycles
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