Inflation Convergence with Realignments in a Two-Speed Europe
AbstractIn the first decade of its existence, the European Monetary System passed through three phases of realignments: full accommodation, partial accommodation, and zero accommodation of inflation differentials. But to what extent does the new freedom of capital movements rule out such gradual convergence with realignments for new members? This paper uses a model with forward looking behavior in labor and financial markets to analyze this question. A rule which partially accommodates inflation differentials is shown to be consistent with inflation convergence and perfect capital mobility, provided the timing of realignments is stochastic and the rule is fully credible. Copyright 1992 by Royal Economic Society.
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Bibliographic InfoArticle provided by Royal Economic Society in its journal The Economic Journal.
Volume (Year): 102 (1992)
Issue (Month): 411 (March)
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Other versions of this item:
- Lambertini, Luisa & Miller, Marcus & Sutherland, Alan, 1991. "Inflation Convergence with Realignments in a Two-Speed Europe," CEPR Discussion Papers 597, C.E.P.R. Discussion Papers.
- F31 - International Economics - - International Finance - - - Foreign Exchange
- F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
- F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
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