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Adjustment in EMU: Is Convergence Assured?

Author Info

Listed author(s):
  • Sebastian Dullien

    ()

    (HTW Berlin -- University of Applied Sciences)

  • Ulrich Fritsche

    ()

    (Department for Socioeconomics, Department for Economics, University of Hamburg)

  • Ingrid Groessl

    ()

    (Department for Socioeconomics, Department for Economics, University of Hamburg)

  • Michael Paetz

    ()

    (Department for Economics, University of Hamburg)

Abstract

Using a modified version of the model presented by Belke and Gros (2007), we analyze the stability of adjustment in a currency union. Using econometric estimates for parameter values we check the stability conditions for the 11 original EMU countries and Greece. We found significant instability in the model for a large number of countries. We then simulate the adjustment process for some empirically observed parameter values and find that even for countries with relatively smooth adjustment, the adjustment to a price shock in EMU might take several decades.

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File URL: https://www.wiso.uni-hamburg.de/repec/hepdoc/macppr_7_2009.pdf
File Function: First version, 2009
Download Restriction: no

Paper provided by Hamburg University, Department Wirtschaft und Politik in its series Macroeconomics and Finance Series with number 200907.

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Length: 36 pages
Date of creation: Sep 2009
Handle: RePEc:hep:macppr:200907
Contact details of provider: Web page: https://www.wiso.uni-hamburg.de/

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Keywords: EMU; convergence; stability; inflation;

Other versions of this item:

Find related papers by JEL classification:
  • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
  • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
  • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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  1. Belke, Ansgar H. & Gros, Daniel, 2007. "Instability of the Eurozone? On Monetary Policy, House Prices and Labor Market Reforms," IZA Discussion Papers 2547, Institute for the Study of Labor (IZA).
  2. Ignazio Angeloni & Luc Aucremanne & Michael Ehrmann & Jordi Galí & Andrew Levin & Frank Smets, 2006. "New Evidence on Inflation Persistence and Price Stickiness in the Euro Area: Implications for Macro Modeling," Journal of the European Economic Association, MIT Press, vol. 4(2-3), pages 562-574, 04-05.
  3. Stephen G. Cecchetti & Guy Debelle, 2006. "Has the inflation process changed?," Economic Policy, CEPR;CES;MSH, vol. 21(46), pages 311-352, 04.
  4. Luis J. Álvarez & Emmanuel Dhyne & Marco Hoeberichts & Claudia Kwapil & Hervé Le Bihan & Patrick Lünnemann & Fernando Martins & Roberto Sabbatini & Harald Stahl & Philip Vermeulen & Jouko Vilmunen, 2006. "Sticky Prices in the Euro Area: A Summary of New Micro-Evidence," Journal of the European Economic Association, MIT Press, vol. 4(2-3), pages 575-584, 04-05.
  5. Angeloni Ignazio & Ehrmann Michael, 2007. "Euro Area Inflation Differentials," The B.E. Journal of Macroeconomics, De Gruyter, vol. 7(1), pages 1-36, August.
  6. Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 19-46, January.
  7. Lane, Philip R., 2006. "The Real Effects of EMU," CEPR Discussion Papers 5536, C.E.P.R. Discussion Papers.
  8. Sebastian Dullien & Ulrich Fritsche, 2007. "Anhaltende Divergenz der Lohnstückkostenentwicklung im Euroraum problematisch," DIW Wochenbericht, DIW Berlin, German Institute for Economic Research, vol. 74(22), pages 349-357.
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