Economic performance and convergence in the Eurozone

This paper is organized as follows: the first part briefly outlines the Optimal Currency Area (OCA) theory. The second part focuses on the methodology used in the analysis, while the results of the analysis itself are presented in the third section. The final part of the paper provides conclusions and discussions of the main results.The aims of the article. The aims of the article is to evaluate one of the conditions of the OCA theory the convergence criterion.The results of the analysis. This paper deals with determining the factors that impact the convergence of the Czech economy to the economy of Eurozone. Moreover, it attempts to determine the level of economic convergence in the EU using the -convergence and -convergence techniques. The existence of this convergence is one of the necessary conditions for the creation of Monetary Union as stems from the Optimal Currency Area theory. The paper employs the OCA theory as the key theoretical basis for empirical analysis and evaluates the cyclical and structural synchronization by the means of correlation coefficients of the GDP development, industrial production, inflation and interest rates.It should be noticed that the Czech economy is constantly not synchronized with the Eurozone in terms of demand shocks which might be seen as a potential problem.As far as the international comparison goes, the Czech Republic is convergent with the core of Eurozone countries, possibly even more than some EA member states. This fact demonstrates the undisputable level of heterogeneity in the Monetary Union.When it comes to the existence of economic convergence among the current EU member states during the time period of 1995-2012, the main findings can be summarized as follows: there was -convergence during the whole period concerned among the EU27, with some shorter sub-periods of divergence (as in the late 1990s and in 2009-2010). Moreover, there is quite a robust evidence of the existence of -convergence in 1995-2012 since the relatively poor states grew on average faster than the rich ones. The pace of catching up increased after the EU Eastern Enlargement in 2004. In addition, in the 1990s we detected no convergence, while in the pre-crisis 2000s we found evidence for the convergence being the fastest and the most robust. Since the start of the world economic and financial crisis (from 2008 onwards), the convergence was not detected.Conclusions and directions of further researches. The results point out at the considerable level of convergence of the Czech economy (except the shock analysis), even though the values seem to be overvalued due to the recent economic and financial crisis.But now it appears that it is optimal to keep the Czech crown as the national currency for some time yet although the level of convergence probably improves over time.