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Destructive Diversity, Inflationary Convergence and the Inflation Criterion : The Way to EMU Reconsidered

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  • Berlemann, Michael

    (Dresden University of Technology CESifo)

Abstract

Since the signing of the Maastricht Treaty, there has been an intensive discussion whether the convergence criteria incorporated into the contract were appropriate to prepare the EU-member-countries for European Monetary Union. We argue that at least inflationary convergence was not a necessary precondition for EMU. This paper aims at analyzing the effects of the inflation criterion with regard to its possible influence on welfare of the EU-member-states during the transitional phase (stage II). It is shown that the inflation criterion can be interpreted as a component of an incentive compatible contract; insofar it has contributed to a decrease in inflation bias during stage II of EMU but played no important role with respect to stage III.

Suggested Citation

  • Berlemann, Michael, 2006. "Destructive Diversity, Inflationary Convergence and the Inflation Criterion : The Way to EMU Reconsidered," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 21, pages 681-707.
    • Handle: RePEc:ris:integr:0374
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    More about this item

    Keywords

    Convergence criteria; Time consistency; Incentive compatible Contracts; EMU;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F15 - International Economics - - Trade - - - Economic Integration
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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