Monetary Union, Entry Conditions and Economic Reform

Gulcin Ozkan, Anne Sibert and Alan Sutherland ()

No 1720, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: 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.

Keywords: Convergence; Entry conditions; Monetary Union (search for similar items in EconPapers)
JEL-codes: F33 F36 (search for similar items in EconPapers)
Date: 1997-11
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Citations: View citations in EconPapers (12)

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