Stability of Monetary Unions: Lessons from the Break-up of Czechoslovakia

Fidrmuc, Jan; Horvath, Julius and Fidrmuc, Jarko (July 1999) Stability of Monetary Unions: Lessons from the Break-up of Czechoslovakia. Former Series > Reihe Transformationsökonomie / Transition Economics Series 10


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Abstract: In 1993, Czechoslovakia experienced a two-fold break-up: On January 1, the country disintegrated as a political union, while preserving an economic and monetary union. Then, the Czech-Slovak monetary union collapsed on February 8. We analyze the economic background of the two break-ups, and discuss lessons for the stability of monetary unions in general. We argue that Czechoslovakia fulfilled some of the optimum currency area criteria, however, given the low correlation of permanent shocks, it appears it was relatively less integrated than some other existing unions. That, along with low labor mobility and a higher concentration of heavy and military industries in Slovakia, made the Czechoslovak economy vulnerable to asymmetric economic shocks-such as those induced by the economic transition. Furthermore, the Czech-Slovak monetary union was marred by low credibility, lack of political commitment, low exit costs, and the absence of fiscal transfers.;

Item Type: IHS Series
Keywords: 'Optimum currency areas' 'Disintegration' 'Czechoslovakia'
Classification Codes (e.g. JEL): F33, F36, F42
Date Deposited: 26 Sep 2014 10:37
Last Modified: 01 Apr 2016 14:11

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