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Euroization, monetary union and credibility of monetary policy

Brkić, Luka; Kotarski, Kristijan
Euroization, monetary union and credibility of monetary policy // Anali Hrvatskog politološkog društva, 5 (2009), 1; 443-460 (podatak o recenziji nije dostupan, članak, znanstveni)

Euroization, monetary union and credibility of monetary policy

Brkić, Luka ; Kotarski, Kristijan

Anali Hrvatskog politološkog društva (1845-6707) 5 (2009), 1; 443-460

Vrsta, podvrsta i kategorija rada
Radovi u časopisima, članak, znanstveni

Ključne riječi
Exchange-rate regime; eurozation; optimum currency areas; monetary union; fiscal policy; monetary policy; structural imbalances

Assessment of exchange-rate arrangements have become an integral feature of recent discussions on reform of the international financial architecture. Meanwhile, numerous articles have sought to identify viable exchange-rate regimes in a world increasingly characterised by high capital mobility. The upshot of this recent interest in exchange-rate regimes is that a large part of the profession appears to have become converted to „ the hypothesis of the vanishing middle regime“ , for countries well-integrated into world capital markets, there is little, if any, middle ground between floating exchange rates and monetary unification. Monetary unions are expected to have welfare improving allocative effects by boosting international trade and economic growth inside the currency area because of the increased stability of the exchange rate brought about by the increased credibility of the exchange rate regime. The literature on optimal currency areas emphasizes that policy independence is crucial if countries face recurrent idiosyncratic disturbances. If member-countries of the EMU show sizeable asymmetry in the timing of business cycle phases and their exposure to exogenous shocks, these countries may be better off retaining their ability to conduct monetary and exchange rate policies. Consequently, the important empirical issue is whether Europe is a region in which country-specific shocks prevail or whether shocks affect most of these countries in a similar way. Eurozation is a relatively rare phenomenon. Yet in recent years it has attracted a lot of attention, which can be proved by an increasing number of studies dealing with this problem, as well as an increasing number of countries taking this course of action. This paper deals with the advantages and disadvantages of eurozation (dollarization), not only from the theoretical aspect but also on the basis of experience of other dolarized countries. The unequivocal conclusion is that eurozation (dollarization) is not a monetary policy instrument that can be recommended to Croatia. Ultimately, a credible exchange-rate regime depends upon the trust evoked by governments. A governance structure that enforces the rule of law and sanctity of contracts and a political system that delivers credible, non-inflationary policies are prerequisites for the existence of a sustainable exchange-rate regime.

Izvorni jezik

Znanstvena područja


Projekt / tema
015-0000000-2474 - Hrvatska i EU: integracijske strategije i kreiranje javnih politika (Luka Brkić, )

Fakultet političkih znanosti, Zagreb