How the Maastricht Regime Fosters Divergence as Well as Instability

Jörg Bibow

Chapter 11 in Aspects of Modern Monetary and Macroeconomic Policies, 2007, pp 197-222 from Palgrave Macmillan

Abstract: Abstract This chapter investigates the phenomenon of persistent macroeconomic divergence that has occurred across the Euro area in the fragile macroeconomic environment of recent years. Optimal currency area theory would point toward asymmetric shocks and structural factors as the foremost candidate causes. The alternative hypothesis pursued here focuses on the working of the Maastricht regime itself, highlighting that the regime features powerful built-in de-stabilizers that foster divergence as well as instability. Supposed adjustment mechanisms have turned out to actually undermine the operation of the currency union by making it ever less ‘optimal’, that is, less subjectable to a ‘one-size-fits-all’ monetary policy and common nominal exchange rate in view of the resulting business cycle de-synchronization and related build-up of financial imbalances.

Keywords: Monetary Policy; Central Bank; Euro Area; Real Interest Rate; European Central Bank (search for similar items in EconPapers)
Date: 2007
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-0-230-62734-5_11

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DOI: 10.1057/9780230627345_11

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