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Adjustment in EMU: Is Convergence Assured?

Sebastian Dullien (), Ulrich Fritsche (), Ingrid Groessl () and Michael Paetz
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Ingrid Groessl: University Hamburg, Germany

No 07-2009, IMK Working Paper from IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute

Abstract: Using a modified version of the model presented by Belke and Gros (2007), we analyze the stability of adjustment in a currency union. Using econometric estimates for parameter values we check the stability conditions for the 11 original EMU countries and Greece. We found significant instability in the model for a large number of countries. We then simulate the adjustment process for some empirically observed parameter values and find that even for countries with relatively smooth adjustment, the adjustment to a price shock in EMU might take several decades. Keywords: EMU, convergence, stability.

Keywords: EMU; convergence; stability; inflation (search for similar items in EconPapers)
JEL-codes: E32 E61 C32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-eec, nep-mac and nep-mon
Date: 2009
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