Lucjan T. Orlowski, Ph.D., John F. Welch College of Business, Sacred Heart University, 5151 Park Avenue, Fairfield, CT 06825 and Hubert Gabrisch, Ph.D., Research Department, Halle Institute for Economic Research, Kleine Maerkerstr. 8, 06108 Halle (Saale), Germany.
We aim to find appropriate benchmarks for evaluating nominal convergence of the EU New Member States to the eurozone. Our focus is on the measures that are relevant for mitigating asymmetric schocks which may arise upon the official adoption of the euro. Time-varying properties and the state of convergence of these measures in recently-admitted EU Members vis-à-vis in the eurozone are empirically assessed by using various econometric techniques. In essence, we are focusing on areas of convergence that are likely to reduce potential for nominal risks stemming from the euro adoption. Important explanation of the focus on risk and sigma-convergence: even if the recently-admitted Member States (RAMS) fulfill the Maastricht criteria at their level at the time of examination for euro-adoption, excessive volatility of convergence indicators may still suggest that upon the actual adoption of the euro RAMS financial markets and real economies are still likely to be subject to large, potentially destabilizing nominal shocks.