Convergence of inflation: A necessary prerequisite for EMU?

Paolo Giovane and Lorenzo Bini-Smashi

Open Economies Review, 1996, vol. 7, issue 2, 117-126

Abstract: This article assesses the rationale for inflation convergence as a major criterion for the passage to the final stage of Economic and Monetary Union (EMU). A simple two-country model is developed to examine the effects of the change in regime under different hypotheses concerning agents' expectations. The results suggest that, in the absence of convergence, the move to EMU is likely to produce spillover effects from the high-inflation to the low-inflation country. The latter, therefore, has a strong incentive to request strict convergence criteria for inflation before moving to EMU. Copyright Kluwer Academic Publishers 1996

Keywords: European monetary unification; inflation convergence (search for similar items in EconPapers)
Date: 1996
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DOI: 10.1007/BF01891899

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