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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- W.H. Buiter, 1995.
"Macroeconomic Policy During a Transition to Monetary Union,"
CEP Discussion Papers
dp0261, Centre for Economic Performance, LSE.
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- Buiter, Willem H., 1995. "Macroeconomic Policy During a Transition to Monetary Union," CEPR Discussion Papers 1222, C.E.P.R. Discussion Papers.
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"Monetary Integration and Economic Convergence,"
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"A Positive Theory of Monetary Policy in a Natural Rate Model,"
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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.
- Winkler, B, 1997. "Of Sticks and Carrots. Incentives and the Maastricht Road to EMU," Economics Working Papers eco97/02, European University Institute.
- Maurice Obstfeld, 1994. "The Logic of Currency Crises," NBER Working Papers 4640, National Bureau of Economic Research, Inc.
- Artis, Michael, 1996. "Alternative Transitions to EMU," Economic Journal, Royal Economic Society, vol. 106(437), pages 1005-15, July.
- De Grauwe, Paul, 1996. "Monetary union and convergence economics," European Economic Review, Elsevier, vol. 40(3-5), pages 1091-1101, April.
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