The Economics of European Monetary Integration and the Convergence Problem

Francesco Farina
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Francesco Farina: University of Siena

Chapter 1 in European Economies in Transition, 2000, pp 3-37 from Palgrave Macmillan

Abstract: Abstract In this paper, the New Classical Economics appraisal of the low credibility faced inside the EMS by the monetary authorities of the peripheral countries has been challenged. The time-inconsistency of the monetary policy cannot be taken as an explanation of the wide differentials of interest with Germany, because from the second half of the 1980s real wage rigidity has prevented a ‘surprise’ inflation be considered a successful strategy by a peripheral country. In the EMU a real divergence might arise between the core and the peripheral countries. The paper maintains that if the ECB continues with the monetary stance fully oriented to price stability, an inflation rate close to zero will make more difficult the reduction of the real wage rate and the peripheral countries would be doomed to bear the burden of excessive deflation.

Keywords: Exchange Rate; Monetary Policy; Central Bank; European Central Bank; Exchange Rate Regime (search for similar items in EconPapers)
Date: 2000
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-0-230-28910-9_1

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DOI: 10.1057/9780230289109_1

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