Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/153714
Authors: 
Brzoza-Brzezina, Michał
Jacquinot, Pascal
Kolasa, Marcin
Year of Publication: 
2010
Series/Report no.: 
ECB Working Paper 1280
Abstract: 
Euro-area accession caused boom-bust cycles in several catching-up economies. Declining interest rates and easier financing conditions fuelled spending and worsened the current account balance. Over time inflation deteriorated external competitiveness and lowered domestic demand, turning the boom into a bust. We ask whether such a scenario can be avoided using macroeconomic tools that are available in the period of joining a monetary union: central parity revaluation, fiscal tightening or increased taxation. While all these policies can be used to cool down the output boom, exchange rate revaluation seems the most attractive option. It simultaneously trims the expansion of output and domestic demand, reduces the cost pressure and ranks first in terms of welfare.
Subjects: 
Boom-bust cycles
dynamic general equilibrium models
euro area accession
JEL: 
E52
E58
E63
Document Type: 
Working Paper

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