Destructive Diversity, Inflationary Convergence and the Inflation Criterion: The Way to EMU Reconsidered

Michael Berlemann ()

Journal of Economic Integration, 2006, vol. 21, 681-707

Abstract:

Since the signing of the Maastricht Treaty, there has been an intensive discussion whether the convergence criteria incorporated into the contract were appropriate to prepare the EU-member-countries for European Monetary Union. We argue that at least inflationary convergence was not a necessary precondition for EMU. This paper aims at analyzing the effects of the inflation criterion with regard to its possible influence on welfare of the EU-member-states during the transitional phase (stage II). It is shown that the inflation criterion can be interpreted as a component of an incentive compatible contract; insofar it has contributed to a decrease in inflation bias during stage II of EMU but played no important role with respect to stage III.

Keywords: Convergence criteria; Time consistency; Incentive compatible Contracts; EMU (search for similar items in EconPapers)
JEL-codes: E58 F15 F33 (search for similar items in EconPapers)
Date: 2006
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Persistent link: https://EconPapers.repec.org/RePEc:ris:integr:0374

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