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

Author

Listed:
  • Polasek, Wolfgang

    (Department of Economomics and Finance, Institute for Advanced Studies, Vienna)

  • 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) of the European Monetary Union (EMU) that led to the introduction of the Euro on Jan. 1st 1999 as book currency. Defining 3 regimes, 1992-97, 1997-1999 and 2000-2001, we analyse convergence properties, like a smooth or a rough transition in the mean or variance shifts 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 check for 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) were 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?," Economics Series 133, Institute for Advanced Studies.
  • Handle: RePEc:ihs:ihsesp:133
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    File URL: http://www.ihs.ac.at/publications/eco/es-133.pdf
    File Function: First version, 2003
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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, Oxford University Press, 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;

    JEL classification:

    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables
    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models

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