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

Jan Fidrmuc, Julius Horvath and Jarko Fidrmuc

No 10, Transition Economics Series from Institute for Advanced Studies

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.

Keywords: Optimum currency areas; disintegration; Czechoslovakia (search for similar items in EconPapers)
JEL-codes: F33 F36 F42 (search for similar items in EconPapers)
Pages: 34 pages
Date: 1999-07
References: Add references at CitEc
Citations: View citations in EconPapers (48)

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https://irihs.ihs.ac.at/id/eprint/1184 First version, 1999 (application/pdf)

Related works:
Journal Article: The Stability of Monetary Unions: Lessons from the Breakup of Czechoslovakia (1999)
Working Paper: Stability of monetary unions: Lessons from the break-up of Czechoslovakia (1999)
Working Paper: Stability of Monetary Unions: Lessons from the Break-Up of Czechoslovakia (1998)
Working Paper: Stability of Monetary Unions: Lessons from the Break-Up of Czechoslovakia (1998)
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