Monetary Union, Entry Conditions and Economic Reform
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.
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References listed on IDEAS
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- Winkler, B, 1997. "Of Sticks and Carrots. Incentives and the Maastricht Road to EMU," Economics Working Papers eco97/02, European University Institute.
- Ozkan, F. Gulcin & Sutherland, Alan, 1998.
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- Gulcin Ozkan & Alan Sutherland, . "A Currency Crisis Model with an Optimising Policymaker," Discussion Papers 96/11, Department of Economics, University of York.
- Sibert, Anne, 1997.
"Monetary Integration and Economic Convergence,"
CEPR Discussion Papers
1561, C.E.P.R. Discussion Papers.
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- Willem H. Buiter, 1995.
"Macroeconomic policy during a transition to monetary union,"
LSE Research Online Documents on Economics
20701, London School of Economics and Political Science, LSE Library.
- Buiter, Willem H., 1995. "Macroeconomic Policy During a Transition to Monetary Union," CEPR Discussion Papers 1222, C.E.P.R. Discussion Papers.
- W.H. Buiter, 1995. "Macroeconomic Policy During a Transition to Monetary Union," CEP Discussion Papers dp0261, Centre for Economic Performance, LSE.
- Barro, Robert J & Gordon, David B, 1983.
"A Positive Theory of Monetary Policy in a Natural Rate Model,"
Journal of Political Economy,
University of Chicago Press, vol. 91(4), pages 589-610, August.
- Robert J. Barro & David B. Gordon, 1981. "A Positive Theory of Monetary Policy in a Natural-Rate Model," NBER Working Papers 0807, National Bureau of Economic Research, Inc.
- Maurice Obstfeld, 1994. "The Logic of Currency Crises," NBER Working Papers 4640, National Bureau of Economic Research, Inc.
- De Grauwe, Paul, 1995. "Alternative strategies towards monetary union," European Economic Review, Elsevier, vol. 39(3-4), pages 483-491, April.
- Artis, Michael, 1996. "Alternative Transitions to EMU," Economic Journal, Royal Economic Society, vol. 106(437), pages 1005-15, July.
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