Potential Impact of the Euro Adoption in the Czech Republic on Relations with the Euro Area
Potential Impact of the Euro Adoption in the Czech Republic on Relations with the Euro Area

Summary/Abstract: The aim of the paper is to evaluate the impact of the euro introduction in the Czech Republic on the trade with euro area. The paper continue the present studies on expected impacts of euro introduction. Benefits associated with a monetary union integration for a newly acceding country are the larger, the higher (or the more growing, as appropriate) is the integration of the country’s economy with the countries of the monetary union. These benefits are further subject to reducing the exchange rate volatility in respect of international trade relations. The stabilizing effect of the replacement of the Czech crown with the Euro will lead to the stimulation of mutual trade. The paper concludes that the integration of the Czech economy with the euro area is high (59% for foreign trade and 82% for foreign direct investment inflows) and increasing. For the assessment of the exchange rates volatility the weightet variation coefficient is used. In case the Czech crown is in fact replaced by the euro, the volatility would decrease to one-half. Furthermore, the risk of a monetary crisis would be eliminated. However the Rose Effect in the trade with euro area will be weak.

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