Monetary union and the Maastricht inflation criterion: The accession countries

F G Ozkan, A Sibert, A Sutherland

Research output: Contribution to journalArticlepeer-review

Abstract

We model an accession country facing a Maastricht-type inflation criterion that specifies an inflation ceiling. In addition to deciding whether or not to satisfy this criterion, the country must decide how much costly economic reform to undertake. If the country puts enough weight on the future that it can credibly meet the inflation criterion no matter what the ceiling is, then the inflation criterion benefits the country but lowers reform. If the country puts less weight on the future, then a criterion with a properly chosen inflation ceiling can increase reform. We derive the inflation ceilings that maximize the country's welfare and its reform.

Original languageEnglish
Pages (from-to)635-652
Number of pages18
JournalEconomics of transition
Volume12
Issue number4
Publication statusPublished - 2004

Keywords

  • Monetary union
  • Maastricht criteria
  • accession countries
  • POLICY
  • UNIFICATION
  • CONVERGENCE
  • REFORM
  • MODEL

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