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The EMU after three years: Lessons and challenges


  • Bofinger, Peter


The first three years of European Monetary Union provide a good basis for a comprehensive analysis of this unprecedented and controversial monetary arrangement. The paper starts with a short discussion of the recent changeover to Euro notes and coins and the general difficulties with the European Central Bank was confronted during the last three years. It then analyses the performance of the common monetary policy in terms of price stability and real growth and in terms of the important task of establishing credibility for the new institution. It discusses the role of the ECB's two pillar strategy and presents an alternative framework for the analysis of the ECB's interest rate policy. As the weak Euro has received much public attention, the paper tries to shed some light on the most important explanations that were put forward especially in 1999 and 2000 and offers an additional argument based on the theory of behavioural finance. As the aggregate monetary policy does not necessarily fit to all individual member countries, the paper analyses whether national fiscal policies have been able and willing to counteract an inadequate monetary policy stance. It also tries to identify to what extend national inflation rates were influenced by the Balassa-Samuelson effect. In the last part the paper deals with some aspects of the eastern enlargement, above all the problems that could by associated with a lack of real convergence.

Suggested Citation

  • Bofinger, Peter, 2002. "The EMU after three years: Lessons and challenges," W.E.P. - Würzburg Economic Papers 33, University of Würzburg, Chair for Monetary Policy and International Economics.
  • Handle: RePEc:zbw:wuewep:33

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    References listed on IDEAS

    1. Svensson, Lars E. O., 1999. "Inflation targeting as a monetary policy rule," Journal of Monetary Economics, Elsevier, vol. 43(3), pages 607-654, June.
    2. De Broeck, Mark & Slok, Torsten, 2006. "Interpreting real exchange rate movements in transition countries," Journal of International Economics, Elsevier, vol. 68(2), pages 368-383, March.
    3. Shleifer, Andrei, 2000. "Inefficient Markets: An Introduction to Behavioral Finance," OUP Catalogue, Oxford University Press, number 9780198292272.
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    Cited by:

    1. Guglielmo maria Coporale & Alexandros Kontonikas, 2006. "The EURO and Inflation Uncertainty In The EMU," Working Papers 2005_13, Business School - Economics, University of Glasgow.
    2. Caporale, Guglielmo Maria & Kontonikas, Alexandros, 2009. "The Euro and inflation uncertainty in the European Monetary Union," Journal of International Money and Finance, Elsevier, vol. 28(6), pages 954-971, October.
    3. Marko Lah & Tjaša Redek & Andrej Sušjan, 2008. "The Changing Role of the Labour Market within the EMU: the Case of Slovenia," Transition Studies Review, Springer;Central Eastern European University Network (CEEUN), vol. 15(2), pages 375-387, September.

    More about this item


    European Central Bank; monetary policy;

    JEL classification:

    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies


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