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The Maastricht Criteria and the Euro: Has the Convergence Continued?

Author

Listed:
  • Polasek, Wolfgang

    (Institute of Advanced Studies)

  • Amplatz, Christian

    (Free University of Bozen-Bolzano)

Abstract

We analyze the performance of the Maastricht convergence criteria (inflation, long-term interest rate, annual and overall public debt to GDP) of the European Monetary Union (EMU) that led to the introduction of the Euro on Jan. 1st 1999 as book currency. For our analysis we define 3 regimes: a) the Maastricht regime from 1992-97 starting from the year when the EMU was established, b) the Amsterdam regime 1997-1999 which is based on the Pact of Stability and Growth (PSG), decided by the EU in 1997 in Amsterdam and c) the Euroland regime 2000-2001, after the introduction of the Euro as book currency. The convergence process is analysed with respect to these 3 regimes, and we test also for a smooth or a rough transition between these 3 regimes. Given the regimes, we test the convergence in econometric models to see if the first and second moments of the convergence process are time dependent. Furthermore we can check if there was a smooth transition process between the regimes and if the convergence process has stabilized around a target path. We find that the speed of the convergence processes for the monetary authority controlled variables inflation and interest rates was rather impressive and very different from the government controlled variables annual deficit and the public debt.

Suggested Citation

  • Polasek, Wolfgang & Amplatz, Christian, 2003. "The Maastricht Criteria and the Euro: Has the Convergence Continued?," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 18, pages 661-688.
    • Handle: RePEc:ris:integr:0254
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    References listed on IDEAS

    as
    1. Dan Ben-David, 1993. "Equalizing Exchange: Trade Liberalization and Income Convergence," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 108(3), pages 653-679.
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    More about this item

    Keywords

    EMU convergence; Maastricht criteria; Heteroskedastic spline models; ARCH regime shifts; Inflation; Public deficits; Interest rates and public debt;
    All these keywords.

    JEL classification:

    • C20 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - General
    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General

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