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The long run-effects of the Poland's accession to the eurozone. Simulation using POLDYN - a dynamic computable general equilibrium model.

Daras, Tomasz and Hagemejer, Jan (2008): The long run-effects of the Poland's accession to the eurozone. Simulation using POLDYN - a dynamic computable general equilibrium model.

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Abstract

The aim of this paper is to assess the non-monetary effects of the euro accession of Poland. The literature identifies two channels that potentially may affect the economy: (i) diminishing of investment risk premia through lower interest rates and cost of capital services and (ii) trade creation effects due to elimination of currency transaction spreads, better price comparability and elimination of currency risk. We employ a dynamic general equilibrium model with perfect foresight multiple households, adjustment cost of capital, disaggregated labor market. We directly model trade-driven productivity spillovers. Our simulations show a long run GDP gain from the euro accession at the level of 7.5% of benchmark GDP of which 90% is realized in first 10 years. The main factor behind growth is investment that leads to an extra 12.6 percent of extra capital accumulated in the long run. The welfare gains amount to roughly 2% of the value of GDP each year. The sensitivity analysis proves that the model behavior is reasonably resistant to parameter changes.

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