Macroeconomic Effects of EU Transfers in New Member States

Large inflows from the European Union to the New Member States are likely to significantlyimpact macroeconomic outcomes. In this paper, we use the IMF''s Global Integrated Monetaryand Fiscal model (GIMF) to analyze the impact of the transfers and show the conditionsunder which they would help speed up convergence. We find that the EU funds need to bedirected predominantly to investment rather than to income support and that to bestaccompany the EU fund inflows, the policy-mix would need to combine counter-cyclicalpolicy with a strong commitment to the existing monetary regime.Capital flows;Investment policy;Capital inflows;Exchange rate regimes;exchange rate, inflation, real exchange rate, real interest rate, monetary policy, relative price, nominal exchange rate, fixed exchange rate, nominal interest rate, inflation targeting, inflation target, exchange rates, exchange rate regime, fixed exchange rate regime, nominal variables, current account balance, flexible exchange rate, real variables, real exchange rates, relative prices, real interest rates, exchange rate arrangements, low inflation, exchange rate appreciation, high inflation, equilibrium exchange rate, inflation dynamics, real exchange rate appreciation, bilateral exchange rates, flexible exchange rate regime, real exchange rate depreciation, fixed exchange rate regimes, real exchange rate behavior, lower inflation, exchange rate behavior, exchange rate depreciation, inflation rate, macroeconomic analysis, flexible exchange rate regimes, percent inflation, fixed exchange rates, increase in inflation