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Monetary Union, Entry Conditions and Economic Reform

Author

Listed:
  • Ozkan, F Gulcin
  • Sibert, Anne
  • Sutherland, Alan

Abstract

This paper models the behaviour of a potential entrant into a monetary union where there is an inflation entry condition. In addition to making a monetary policy decision during a qualifying period, the potential entrant must make a decision about structural reform. The paper shows that the entry condition can have two undesirable effects. First, it can lead to multiple equilibria because inflationary expectations acquire a self-fulfilling property. Second, the entry condition can lead to a reduction in the amount of reform. This is because the entry condition reduces inflationary expectations and thus reduces the incentive to reform.

Suggested Citation

  • Ozkan, F Gulcin & Sibert, Anne & Sutherland, Alan, 1997. "Monetary Union, Entry Conditions and Economic Reform," CEPR Discussion Papers 1720, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:1720
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    Cited by:

    1. Nadine Leiner-Killinger & Víctor López Pérez & Roger Stiegert & Giovanni Vitale, 2007. "Structural reforms in EMU and the role of monetary policy – a survey of the literature," Occasional Paper Series 66, European Central Bank.
    2. Bilin Neyapti & Secil Ozgur, 2007. "The Effects Of Fiscal And Monetary Discipline On Budgetary Outcomes," Contemporary Economic Policy, Western Economic Association International, vol. 25(2), pages 146-155, April.
    3. Jürgen Von Hagen, 1999. "Macroeconomic Consequences of the EMU," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 26(4), pages 359-374, December.
    4. Berthold Herrendorf & Manfred J.M. Neumann, 2003. "The Political Economy of Inflation, Labour Market Distortions and Central Bank Independence," Economic Journal, Royal Economic Society, vol. 113(484), pages 43-64, January.
    5. Carsten Hefeker, 2010. "Fiscal reform and monetary union in West Africa," Journal of International Development, John Wiley & Sons, Ltd., vol. 22(1), pages 86-102.
    6. Andrew Hughes Hallett & Svend E Hougaard Jensen & Christian Richter, 2004. "Northern and Eastern Enlargement of EMU: Do Structural Reforms Matter?," SUERF Studies, SUERF - The European Money and Finance Forum, number 2004/3 edited by Morten Balling, May.
    7. Belke, Ansgar H. & Herz, Bernhard & Vogel, Lukas, 2005. "Structural Reforms and the Exchange Rate Regime: A Panel Analysis for the World versus OECD Countries," IZA Discussion Papers 1798, Institute of Labor Economics (IZA).
    8. Ansgar Belke & Bernhard Herz & Lukas Vogel, 2006. "Exchange Rate Regimes and Reforms: A Panel Analysis for the World versus OECD Countries," International Finance, Wiley Blackwell, vol. 9(3), pages 317-342, December.
    9. Sibert, Anne & Sutherland, Alan, 2000. "Monetary union and labor market reform," Journal of International Economics, Elsevier, vol. 51(2), pages 421-435, August.
    10. Beetsma, Roel M. W. J. & Jensen, Henrik, 2003. "Structural convergence under reversible and irreversible monetary unification," Journal of International Money and Finance, Elsevier, vol. 22(3), pages 417-439, June.
    11. F. Gulcin Ozkan & Anne Sibert & Alan Sutherland, 2004. "Monetary union and the Maastricht inflation criterion: The accession countries," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 12(4), pages 635-652, December.
    12. Cacciatore, Matteo & Fiori, Giuseppe & Ghironi, Fabio, 2016. "Market deregulation and optimal monetary policy in a monetary union," Journal of International Economics, Elsevier, vol. 99(C), pages 120-137.
    13. Carsten Hefeker, 2000. "Structural Reforms and the Enlargement of Monetary Union," CESifo Working Paper Series 270, CESifo.

    More about this item

    Keywords

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    JEL classification:

    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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