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Inflation Convergence with Realignments in a Two-Speed Europe

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  • Lambertini, Luisa
  • Miller, Marcus
  • Sutherland, Alan

Abstract

In 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.

Suggested Citation

  • Lambertini, Luisa & Miller, Marcus & Sutherland, Alan, 1992. "Inflation Convergence with Realignments in a Two-Speed Europe," Economic Journal, Royal Economic Society, vol. 102(411), pages 333-341, March.
  • Handle: RePEc:ecj:econjl:v:102:y:1992:i:411:p:333-41
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    References listed on IDEAS

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    Cited by:

    1. Su Zhou, "undated". "Nonlinearity and stationarity of inflation rates: Evidence from the euro-zone countries," Working Papers 0006, College of Business, University of Texas at San Antonio.
    2. Víctor Montuenga-Gómez, 2002. "Did the EMS encourage inflation convergence?," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 8(2), pages 119-127, May.
    3. repec:kap:iaecre:v:8:y:2002:i:2:p:119-127 is not listed on IDEAS

    More about this item

    JEL classification:

    • 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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