Exchange Rate Regimes and Poland's Participation in ERM II

Abstract

In this paper we address some of the issues resulting from Poland's will to join the Economic and Monetary Union. Our attention focuses on topics related to the possibly soon entry into the European exchange rate mechanism (ERM II). We consider the possible paths of entering the system, providing a detailed analysis of the choice of fluctuation margins and the central parity. Further, we analyze the possible monetary policy strategies within the system. We describe the benefits and drawbacks of ERM II participation and consider the eventuality of parity revaluation. In this part estimates of the Balassa-Samuelson effect for Poland are provided.Transition economies, Poland, ERM II, Balassa-Samuelson effect, equilibrium exchange rate