Adjustment in EMU: is convergence assured?

Sebastian Dullien; Ulrich Fritsche; Ingrid Größl; Michael Paetz

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. Keywords: EMU, convergence, stability

MoreLess

Year of publication:	2009
Authors:	Dullien, Sebastian ; Fritsche, Ulrich ; Größl, Ingrid ; Paetz, Michael
Publisher:	Düsseldorf : Hans-Böckler-Stiftung
Subject:	EMU \| convergence \| stability \| inflation \| Eurozone \| Euro area \| EU-Staaten \| EU countries \| Wirtschaftliche Konvergenz \| Economic convergence \| Inflation \| Konvergenzkriterien \| Convergence criteria \| Wirtschaftliche Anpassung \| Economic adjustment \| Inflationsbekämpfung \| Anti-inflation policy \| Währungsunion \| Monetary union