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Inflation Convergence with Realignments in a Two-Speed Europe

Author

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

Abstract

In the first decade of its existence the EMS passed through three phases of realignments: full accommodation, partial accommodation and zero accommodation of inflation differentials. To what extent, however, does the new freedom of capital movements within the EC rule out such gradual convergence with realignments for new members? This paper uses a model with forward-looking behaviour in labour and financial markets to analyse this question. A rule which partially accommodates inflation differentials is shown to be consistent with inflation convergence and perfect capital mobility, provided that the timing of realignments is stochastic and the rule is fully credible.

Suggested Citation

  • Lambertini, Luisa & Miller, Marcus & Sutherland, Alan, 1991. "Inflation Convergence with Realignments in a Two-Speed Europe," CEPR Discussion Papers 597, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:597
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    References listed on IDEAS

    as
    1. Alesina, Alberto & Drazen, Allan, 1991. "Why Are Stabilizations Delayed?," American Economic Review, American Economic Association, pages 1170-1188.
    2. Albert O. Hirschman & Robert V. Rosa, 1949. "Postwar credit controls in France," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), pages 348-360.
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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, pages 119-127.
    3. repec:kap:iaecre:v:8:y:2002:i:2:p:119-127 is not listed on IDEAS

    More about this item

    Keywords

    EMS; EMU; Exchange Rate Realignments; Inflation Convergence;

    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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