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Managing economic convergence and financial stability in the czech republic

Oldrich Dedek

Prague Economic Papers, 2002, vol. 2002, issue 2, 121-134

Abstract: This article addresses the issue of macroeconomic policies in the pre-accession period. The key theme is an assessment of the relationship between the real and nominal convergence of the candidate countries towards the EU. Support for real convergence cannot procced on a long-term basis in contradiction to the nominal convergence criteria. Despite a renewal of growth in 1999, a whole range of persisting structural problems, chiefly in the fiscal area, confirm the benefit of voluntary pursuance of the nominal concergence criteria. Fof the central bank, the inflation criterion is particularly relevant. The issue of catchingup with the EU price level is discussed from this point of view. Neither the theoretical models (the law of one price and the Balassa-Samuelson effect) nor the empirical evidence provide arguments for abandoning the efforts for price stability. The most appropriate monetary policy regime linking the interests of monetary policy and government economic policy is inflation targeting.

Keywords: inflation targeting; accession process; policy mix; nominal and real convergence; price level; Balassa-Samuelson effect; one price law (search for similar items in EconPapers)
JEL-codes: E23 E31 E52 E61 F02 F15 (search for similar items in EconPapers)
Date: 2002
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DOI: 10.18267/j.pep.191

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