European economic integration - the role of monetary policy
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Abstract
Overall, this thesis finds that financial and economic conditions in central, eastern and south-eastern Europe (CESEE) are significantly affected by euro area monetary policy. Moreover, monetary policy independence in CESEE countries seems to be somewhat limited, especially in the presence of unofficial euroisation. Given high business cycle synchronization between CESEE countries and the euro area, the limitation or absence of independent monetary policy is not very costly.
The first part of the thesis deals with the ECB's non-standard monetary policy measures introduced since 2008, with the results suggesting that spillovers of non-standard monetary policy measures to south-eastern Europe are similar to spillovers of conventional monetary policy measures that have been identified by the literature.
The second part focuses on unofficial financial euroisation. The results lead to the conclusion that domestic central banks in countries with independent monetary policy can only partially control the “euro part” of the interest rate channel in the presence of unofficial financial euroisation.
The third part assesses the degree of business cycle synchronization between the Western Balkans and the European Union. The results indicate that business cycles have clearly converged over time, and that foreign trade is the most important positive contributor to business cycle synchronization.