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Trends in European Productivity and Real Exchange Rates: Implications for the Maastricht Convergence Criteria and for Inflation Targets after EMU

Author

Listed:
  • Canzoneri, Matthew B
  • Diba, Behzad
  • Fudey, Gwen

Abstract

While overall inflation has fallen dramatically in countries like Italy and Spain, inflation in the home good sector remains stubbornly higher than inflation in the traded good sector. If nominal exchange rates are fixed, these real appreciations imply an inflation differential with countries like Germany. We first show that the real appreciations can be explained largely by differences in productivity trends across the traded and non-traded goods sectors. We then analyse the implications of the trends in productivity for the consistency of the Maastricht convergence criteria, and we discuss the pressure productivity trends put on monetary policy in countries like Italy and Spain to meet the convergence criteria; we also discuss steps that might be taken to change the trends in productivity. Lastly, we calculate the implications of current trends in productivity for the differences in regional inflation under a common currency. Comparisons are made with regional productivity trends in the United States.

Suggested Citation

  • Canzoneri, Matthew B & Diba, Behzad & Fudey, Gwen, 1996. "Trends in European Productivity and Real Exchange Rates: Implications for the Maastricht Convergence Criteria and for Inflation Targets after EMU," CEPR Discussion Papers 1417, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:1417
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    Citations

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    Cited by:

    1. Václav Žďárek & Jaromír Šindel, 2007. "Real and Nominal Convergence and the New EU Member States - Actual State and Implications," Prague Economic Papers, Prague University of Economics and Business, vol. 2007(3), pages 195-219.
    2. Camba-Méndez, Gonzalo & Garcí­a, Juan Angel & Rodriguez-Palenzuela, Diego, 2003. "Relevant economic issues concerning the optimal rate of inflation," Working Paper Series 278, European Central Bank.
    3. Ronald MacDonald & Cezary Wójcik, 2006. "Catching-up, Inflation Differentials and Credit Booms in a Heterogeneous Monetary Union: Some Implications for EMU and new EU Member States," CESifo Working Paper Series 1761, CESifo.
    4. Ronald MacDonald, 2000. "The role of the exchange rate in economic growth: a euro-zone perspective," Working Paper Research 09, National Bank of Belgium.
    5. repec:onb:oenbwp:y::i:61:b:1 is not listed on IDEAS
    6. Ansgar Belke & Daniel Gros, 1998. "Asymmetric shocks and EMU: Is there a need for a stability fund?," Intereconomics: Review of European Economic Policy, Springer;ZBW - Leibniz Information Centre for Economics;Centre for European Policy Studies (CEPS), vol. 33(6), pages 274-288, November.
    7. repec:onb:oenbwp:y::i:27:b:1 is not listed on IDEAS
    8. Václav Žďárek, 2009. "Challenges for the new EU member states on the road to the Eurozone," International Economics and Economic Policy, Springer, vol. 6(2), pages 157-177, July.
    9. Peter Backé & Jarko Fidrmuc & Thomas Reininger & Franz Schardax, 2002. "Price Dynamics in Central and Eastern European EU Accession," Working Papers 61, Oesterreichische Nationalbank (Austrian Central Bank).
    10. Matthew Canzoneri & Robert Cumby & Behzad Diba & Gwen Eudey, 1998. "Trends in European Productivity: Implications for Real Exchange Rates, Real Interest Rates and Inflation Differentials," Working Papers 27, Oesterreichische Nationalbank (Austrian Central Bank).
    11. Tyrväinen, Timo, 1998. "What do we know about productivity gaps and convergence in EMU economies?," Bank of Finland Research Discussion Papers 31/1998, Bank of Finland.
    12. MacDonald, Ronald & Wójcik, Cezary, 2008. "Catching-up and inflation differentials in a heterogeneous monetary union: Some implications for the euro area and new EU Member States," Economic Systems, Elsevier, vol. 32(1), pages 4-16, March.
    13. Lafrance, Robert & St-Amant, Pierre, 2000. "Les zones monétaires optimales," L'Actualité Economique, Société Canadienne de Science Economique, vol. 76(4), pages 577-612, décembre.

    More about this item

    Keywords

    Inflation; Maastricht Treaty; Productivity;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F02 - International Economics - - General - - - International Economic Order and Integration
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade

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