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The business cycle implications of the euro adoption in Poland

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Abstract:

This article analyses the macroeconomic impact of the loss of autonomous monetary policy after the euro adoption in Poland. Using a two-country Dynamic Stochastic General Equilibrium (DSGE) model with sticky prices and wages, we find that the euro adoption will have a noticeable impact on the magnitude of economic fluctuations. In particular, the volatility of output, interest rate, consumption and employment is expected to increase while the volatility of inflation should decrease. Also, in order to quantify the effect of the euro adoption, we compute the welfare effect of this monetary policy change. Our findings suggest that the welfare cost is not large.

Keywords: DSGE; E52; E58; EMU accession countries; F33; F41; euro; monetary policy

Document Type: Research Article

DOI: https://doi.org/10.1080/00036846.2012.667550

Affiliations: National Bank of Poland,Economic Institute, Swietokrzyska 11/2100-919 Warszawa, Poland

Publication date: 2013-06-01

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