Macroeconomic impacts of European Union membership of Central and Eastern European economies

Macroeconomic Impacts of European Union Membership of Central and Eastern European Economies REINHARD NECK,* GOTTFRIED HABER,* AND WARWICK J. MCKIBBIN** This paper examines the impact of an eastern enlargement of the European Union. This is modeled as an increase in total factor productivity and a decrease in the risk premium for the central and eastern European countries (CEECs). In particular, a multicountry model of the world economy is used to assess the direct effects and spillovers of these changes. Inflation targeting for the euro zone by the European Central Bank and alternative scenarios with respect to fiscal policy behavior in the CEECs are considered. According to these simulations, productivity effects are stronger than risk premium effects, and spillovers are small. (JEL E6, F4,04, CO).The authors gratefully acknowledge the financial support from the Austrian Science Foundation (project PI2745-OEK) and the Ludwig Boltzmann Institute for Economic Analysis. The authors also wish to thank Fritz Breuss, Wilhelm Kohler, Fritz Schebeck, and participants of the Forty-Seventh International Atlantic Economic Conference, Vienna, Austria, March 16-23, t999 for helpful comments and suggestio