A Small Macroeconomic Model of the EU-Accession Countries

Abstract

This paper develops a small macro-economic model of the CEECs to analyze various aspects of integration with the current EU and the role of monetary and exchange rate strategies during the (pre-) accession phase. The model gives insight into both the adjustment of the internal balance (as for output and employment) and the external balance (as for exports and competitiveness) in the accession countries. The model provides more insight into the basic macroeconomic relationships governing macroeconomic adjustment in the accession countries and also the role of the integration with the EU in that adjustment. We perform empirical simulations of different scenarios and analyze the resulting macroeconomic adjustment. In particular, we compare how a macroeconomic shock in the current EU is transmitted to the accession countries under flexible and fixed euro exchange rates, respectively.