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Is Croatia ready for the EMU?: An ex ante analysis of nominal and real convergence

The EU-enlargement and the advanced process of economic integration have brought attention to monetary integration and the conditions for its successful functioning. The main theoretical framework of the analysis – the OCA-theory – foresees three main requirements for that – mobility of production factors, fiscal solidarity and trade integration. Although not theoretically founded, the Maastricht criteria of price and exchange rate stability, balanced public finance and long-term interest rates should contribute to successful monetary integration in the EU which faces inter-regional differences in the level of development and the possibility of external shocks. The analysis of nominal convergence shows that Croatia approaches the reference values of the EU and achieves a high degree of macroeconomic stability. However, it lags behind the successful new EU-member states in respect of trade integration and production structure similarity which can be regarded as important indicators of the long-term advantages of monetary integration.

optimum currency area ; exchange rate ; trade integration ; EMU ; Croatia

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