Do the new EU member states form an Optimum Currency Area with the eurozone? Evidence from six Central and Eastern European Countries

The present paper examines whether six of the new European Union member states -the six Central and Eastern European Countries- form an optimum currency area (OCA) with the eurozone. The study applies the theory of Generalized Purchasing Power Parity, which analyses the behavior of the long-run real exchange rates of a group of economies with respect to a base currency. The findings indicate that the six countries form an OCA with the eurozone for the period following the introduction of the euro.