IDEAS home Printed from https://ideas.repec.org/a/eee/ecosys/v30y2006i4p385-404.html
   My bibliography  Save this article

The Maastricht inflation criterion: How unpleasant is purgatory?

Author

Listed:
  • Bulir, Ales
  • Hurnik, Jaromir

Abstract

The Maastricht inflation criterion, designed in the early 1990s to bring "high-inflation" EU countries in line with "low-inflation" countries prior to the introduction of the euro, poses challenges for both new EU member countries and the European Central Bank. While the criterion has positively influenced the public stance toward low inflation, it has biased the choice of the disinflation strategy toward short-run, fiat measures-rather than adopting structural reforms with longer-term benefits-with unpleasant consequences for the efficiency of the eurozone transmission mechanism. The criterion is also unnecessarily tight for new member countries as it mainly reflects cyclical developments.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Bulir, Ales & Hurnik, Jaromir, 2006. "The Maastricht inflation criterion: How unpleasant is purgatory?," Economic Systems, Elsevier, vol. 30(4), pages 385-404, December.
    • Handle: RePEc:eee:ecosys:v:30:y:2006:i:4:p:385-404
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0939-3625(06)00056-2
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Maurel, Mathilde & Boone, Laurence & Babetski, Jan, 2002. "Exchange Rate Regimes and Supply Shocks Asymmetry: The Case of the Accession Countries," CEPR Discussion Papers 3408, C.E.P.R. Discussion Papers.
    2. Lars E. O. Svensson, 2000. "The First Year of the Eurosystem: Inflation Targeting or Not?," American Economic Review, American Economic Association, vol. 90(2), pages 95-99, May.
    3. Jeff Fuhrer & George Moore, 1995. "Inflation Persistence," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 110(1), pages 127-159.
    4. Ben S. Bernanke & Julio J. Rotemberg (ed.), 1997. "NBER Macroeconomics Annual 1997," MIT Press Books, The MIT Press, edition 1, volume 1, number 026252242x, April.
    5. Francesco Giavazzi & Marco Pagano, 1991. "The Advantage of Tying One's Hands: EMS Discipline and Central Bank Credibility," NBER Chapters, in: International Volatility and Economic Growth: The First Ten Years of The International Seminar on Macroeconomics, pages 303-330, National Bureau of Economic Research, Inc.
    6. F. Gulcin Ozkan & Anne Sibert & Alan Sutherland, 2004. "Monetary union and the Maastricht inflation criterion: The accession countries," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 12(4), pages 635-652, December.
    7. Nicoletta Batini & Andrew Haldane, 1999. "Forward-Looking Rules for Monetary Policy," NBER Chapters, in: Monetary Policy Rules, pages 157-202, National Bureau of Economic Research, Inc.
    8. Stephen G. Cecchetti & Michael Ehrmann, 2002. "Does Inflation Targeting Increase Output Volatility?: An International Comparison of Policymakers' Preferences and Outcomes," Central Banking, Analysis, and Economic Policies Book Series, in: Norman Loayza & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series (ed.),Monetary Policy: Rules and Transmission Mechanisms, edition 1, volume 4, chapter 9, pages 247-274, Central Bank of Chile.
    9. L. Bini Smaghi, 1994. "EMS discipline: did it contribute to inflation convergence?," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 47(189), pages 187-223.
    10. Vladislav Flek & Lenka Marková & Jiøí Podpiera, 2003. "Sectoral Productivity and Real Exchange Rate Appreciation: Much Ado about Nothing?," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 53(3-4), pages 130-153, March.
    11. Bulir, Ales & Smidkova, Katerina, 2005. "Exchange rates in the new EU accession countries: What have we learned from the forerunners?," Economic Systems, Elsevier, vol. 29(2), pages 163-186, June.
    12. Julio J. Rotemberg & Michael Woodford, 1997. "An Optimization-Based Econometric Framework for the Evaluation of Monetary Policy," NBER Chapters, in: NBER Macroeconomics Annual 1997, Volume 12, pages 297-361, National Bureau of Economic Research, Inc.
    13. Fabio Rumler, 2007. "Estimates of the Open Economy New Keynesian Phillips Curve for Euro Area Countries," Open Economies Review, Springer, vol. 18(4), pages 427-451, September.
    14. Angeloni Ignazio & Ehrmann Michael, 2007. "Euro Area Inflation Differentials," The B.E. Journal of Macroeconomics, De Gruyter, vol. 7(1), pages 1-36, August.
    15. Enrique Alberola-Ila & Tymo Tyrväinen, 1998. "Is there Scope for Inflation Differentials in EMU? An Empirical Evaluation of the Balassa-Samuelson Model in EMU Countries," Working Papers 9823, Banco de España.
    16. Martin Cihak & Tomas Holub, 2005. "Price Convergence in EU-Accession Countries: Evidence from the International Comparison," Economie Internationale, CEPII research center, issue 102, pages 59-82.
    17. Philip Arestis & Kostas Mouratidis, 2004. "Is There a Trade‐Off Between Inflation Variability and Output‐Gap Variability in the EMU Countries?," Scottish Journal of Political Economy, Scottish Economic Society, vol. 51(5), pages 691-706, November.
    18. Babetskii, Ian & Boone, Laurence & Maurel, Mathilde, 2004. "Exchange rate regimes and shocks asymmetry: the case of the accession countries," Journal of Comparative Economics, Elsevier, vol. 32(2), pages 212-229, June.
    19. Fuhrer, Jeffrey C & Moore, George R, 1995. "Monetary Policy Trade-offs and the Correlation between Nominal Interest Rates and Real Output," American Economic Review, American Economic Association, vol. 85(1), pages 219-239, March.
    20. Fuhrer, Jeffrey C., 2010. "Inflation Persistence," Handbook of Monetary Economics, in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 9, pages 423-486, Elsevier.
    21. Alan Ahearne & Jean Pisani-Ferry, 2006. "The Euro- only for the agile," Policy Briefs 42, Bruegel.
    22. Mr. Papa M N'Diaye & Mr. Douglas Laxton, 2002. "Monetary Policy Credibility and the Unemployment-Inflation Tradeoff: Some Evidence From 17 Industrial Countries," IMF Working Papers 2002/220, International Monetary Fund.
    23. L. Bini Smaghi, 1994. "EMS discipline: did it contribute to inflation convergence?," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 47(189), pages 187-223.
    24. Egert, Balazs & Drine, Imed & Lommatzsch, Kirsten & Rault, Christophe, 2003. "The Balassa-Samuelson effect in Central and Eastern Europe: myth or reality?," Journal of Comparative Economics, Elsevier, vol. 31(3), pages 552-572, September.
    25. Buiter, Willem, 2004. "To Purgatory and Beyond: When and How Should the Accession Countries from Central and Eastern Europe Become Full Members of EMU?," CEPR Discussion Papers 4342, C.E.P.R. Discussion Papers.
    26. Miriam Camarero & Vicente Esteve & Cecilio Tamarit, 2000. "Price convergence of peripheral European countries on the way to the EMU: A time series approach," Empirical Economics, Springer, vol. 25(1), pages 149-168.
    27. Vincent Koen & Paul van den Noord, 2005. "Fiscal Gimmickry in Europe: One-Off Measures and Creative Accounting," OECD Economics Department Working Papers 417, OECD Publishing.
    28. Ciccarelli, Matteo & Rebucci, Alessandro, 2006. "Has the transmission mechanism of European monetary policy changed in the run-up to EMU?," European Economic Review, Elsevier, vol. 50(3), pages 737-776, April.
    29. Hofmann, Boris & Remsperger, Hermann, 2005. "Inflation differentials among the Euro area countries: Potential causes and consequences," Journal of Asian Economics, Elsevier, vol. 16(3), pages 403-419, June.
    30. Ben S. Bernanke & Julio J. Rotemberg, 1997. "NBER Macroeconomics Annual 1997, Volume 12," NBER Books, National Bureau of Economic Research, Inc, number bern97-1.
    31. John B. Taylor, 1999. "Monetary Policy Rules," NBER Books, National Bureau of Economic Research, Inc, number tayl99-1.
    32. Fuhrer, Jeffrey C, 1997. "Inflation/Output Variance Trade-Offs and Optimal Monetary Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(2), pages 214-234, May.
    33. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
    34. Chionis, Dionysios P. & Leon, Costas A., 2006. "Interest rate transmission in Greece: Did EMU cause a structural break?," Journal of Policy Modeling, Elsevier, vol. 28(4), pages 453-466, May.
    35. Mr. Douglas Laxton & Mr. Andrew Berg & Mr. Philippe D Karam, 2006. "A Practical Model-Based Approach to Monetary Policy Analysis—Overview," IMF Working Papers 2006/080, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. repec:cnb:ocpubv:rb07/1 is not listed on IDEAS
    2. Mr. Martin Cihak & Mr. Wim Fonteyne, 2009. "Five Years After: European Union Membership and Macro-Financial Stability in the New Member States," IMF Working Papers 2009/068, International Monetary Fund.
    3. Monica SUSANU, 2014. "Trilemma EU and EMU Challenges: Fiscal Competition, Harmonization or Unification," Economics and Applied Informatics, "Dunarea de Jos" University of Galati, Faculty of Economics and Business Administration, issue 3, pages 109-116.
    4. Vlastimir Vukovic & Aleksandar Zdravkovic, 2011. "The Inflation and Exchange Rate in the Five Balkan Countries from Maastricht Convergence Criteria Prospect," Book Chapters, in: Stefan Bogdan Salej & Dejan Eric & Srdjan Redzepagic & Ivan Stosic (ed.), Contemporary Issues in the Integration Processes of Western Balkan Countries in the European Union, chapter 3, pages 38-55, Institute of Economic Sciences.
    5. Jan Babecký & Aleš Bulíř & Kateřina šmídková, 2009. "Sustainable real exchange rates in the new EU Member States: Is FDI a mixed blessing?," European Economy - Economic Papers 2008 - 2015 368, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    6. Calzada, Joan & Diaz-Serrano, Luis, 2023. "Conflicting national policies: The creation of the euro and the rebalancing of telecommunications prices," Telecommunications Policy, Elsevier, vol. 47(1).
    7. Kateøina Šmídková & Aleš Bulíø, 2007. "Striving to Be “Clearly Open” and “Crystal Clear”: Monetary Policy Communication of the CNB," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 57(11-12), pages 540-557, December.
    8. Mr. Ashoka Mody & Ms. Franziska L Ohnsorge, 2007. "Can Domestic Policies Influence Inflation?," IMF Working Papers 2007/257, International Monetary Fund.
    9. Juraj Antal & Jan Filáček & Jan Frait & Roman Horvath & Viktor Kotlán & Michal Skořepa, 2009. "Monetary Policy Strategies before Euro Adoption: The Art of Chasing Many Rabbits," Czech Economic Review, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, vol. 3(2), pages 176-198, July.
    10. repec:cnb:ocpubv:rb06/1 is not listed on IDEAS
    11. Angelini, E. & Dieppe, A. & Pierluigi, B., 2015. "Modelling internal devaluation experiences in Europe: Rational or learning agents?," Journal of Macroeconomics, Elsevier, vol. 43(C), pages 81-92.
    12. repec:cnb:ocpubv:rb05/2 is not listed on IDEAS
    13. Severine Menguy, 2010. "Enlargement of the Economic and Monetary Union: To which Structurally Heterogeneous Countries?," International Economic Journal, Taylor & Francis Journals, vol. 24(1), pages 53-70.
    14. Siklos, Pierre L., 2006. "Hungary's entry into the euro area: Lessons for prospective members from a monetary policy perspective," Economic Systems, Elsevier, vol. 30(4), pages 366-384, December.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ales Bulir & Jaromir Hurnik, 2006. "The Maastricht Inflation Criterion: "Saints" and "Sinners"," Working Papers 2006/8, Czech National Bank.
    2. Coenen, Gunter & Wieland, Volker, 2005. "A small estimated euro area model with rational expectations and nominal rigidities," European Economic Review, Elsevier, vol. 49(5), pages 1081-1104, July.
    3. Coenen Günter & Orphanides Athanasios & Wieland Volker, 2004. "Price Stability and Monetary Policy Effectiveness when Nominal Interest Rates are Bounded at Zero," The B.E. Journal of Macroeconomics, De Gruyter, vol. 4(1), pages 1-25, February.
    4. Levin, Andrew T. & Williams, John C., 2003. "Robust monetary policy with competing reference models," Journal of Monetary Economics, Elsevier, vol. 50(5), pages 945-975, July.
    5. Linde, Jesper, 2005. "Estimating New-Keynesian Phillips curves: A full information maximum likelihood approach," Journal of Monetary Economics, Elsevier, vol. 52(6), pages 1135-1149, September.
    6. Jean Boivin & Marc P. Giannoni, 2006. "Has Monetary Policy Become More Effective?," The Review of Economics and Statistics, MIT Press, vol. 88(3), pages 445-462, August.
    7. Mark Gertler & Jordi Gali & Richard Clarida, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December.
    8. McCallum, Bennett T. & Nelson, Edward, 1999. "Nominal income targeting in an open-economy optimizing model," Journal of Monetary Economics, Elsevier, vol. 43(3), pages 553-578, June.
    9. Dominique Pepin, 2004. "The role of the "Maximizing Output Growth Inflation Rate" in monetary policy," Working Papers hal-00965020, HAL.
    10. Wieland, Volker & Wolters, Maik, 2013. "Forecasting and Policy Making," Handbook of Economic Forecasting, in: G. Elliott & C. Granger & A. Timmermann (ed.), Handbook of Economic Forecasting, edition 1, volume 2, chapter 0, pages 239-325, Elsevier.
    11. Wieland, Volker & Cwik, Tobias & Müller, Gernot J. & Schmidt, Sebastian & Wolters, Maik, 2012. "A new comparative approach to macroeconomic modeling and policy analysis," Journal of Economic Behavior & Organization, Elsevier, vol. 83(3), pages 523-541.
    12. Dennis, Richard & Soderstrom, Ulf, 2006. "How Important Is Precommitment for Monetary Policy?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(4), pages 847-872, June.
    13. Aksoy, Yunus & Orphanides, Athanasios & Small, David & Wieland, Volker & Wilcox, David, 2006. "A quantitative exploration of the opportunistic approach to disinflation," Journal of Monetary Economics, Elsevier, vol. 53(8), pages 1877-1893, November.
    14. Amato, Jeffery D. & Laubach, Thomas, 2003. "Rule-of-thumb behaviour and monetary policy," European Economic Review, Elsevier, vol. 47(5), pages 791-831, October.
    15. Òscar Jordà, 2005. "Estimation and Inference of Impulse Responses by Local Projections," American Economic Review, American Economic Association, vol. 95(1), pages 161-182, March.
    16. Coenen, Gunter, 2007. "Inflation persistence and robust monetary policy design," Journal of Economic Dynamics and Control, Elsevier, vol. 31(1), pages 111-140, January.
    17. Sharon Kozicki & Peter A. Tinsley, 2002. "Term premia : endogenous constraints on monetary policy," Research Working Paper RWP 02-07, Federal Reserve Bank of Kansas City.
    18. Ireland, Peter N., 2003. "Endogenous money or sticky prices?," Journal of Monetary Economics, Elsevier, vol. 50(8), pages 1623-1648, November.
    19. McCallum, Bennett T, 2000. "Theoretical Analysis Regarding a Zero Lower Bound on Nominal Interest Rates," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(4), pages 870-904, November.
    20. M. Marzo, 2001. "Evaluating Monetary Policy Regimes: the Role of Nominal Rigidities," Working Papers 411, Dipartimento Scienze Economiche, Universita' di Bologna.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ecosys:v:30:y:2006:i:4:p:385-404. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: https://edirc.repec.org/data/osteide.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.