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Accession of the Czech Republic into euro area and Maastricht convergence criteria from the perspective of theory of „impossible trinity“

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  • Mojmír Helísek

    (University of Finance and Administration)

Abstract

Accession into euro area is conditioned (among others) by stable low inflation rate and stable currency exchange rate (participation in ERM IIII). Treaty on EU defines obligation to maintain free international capital flow. It concerns three objectives and theory of “impossible trinity” considers simultaneous fulfillment of all these three objectives infeasible. Experience resulting from the first wave of euro area members shows temporary limitation of capital flow, or loss of autonomous currency policy. Stable exchange rate is maintained, but extension of fluctuation zone denies its character of “stable exchange rate”. In conditions of ERM IIII (Greece, Slovenia, Lithuania) stable exchange rate, low inflation rate (with connection of currency policy with European Central Bank) and free capital flow were reached. Present development of the Czech economy shows the same development. Maintaining low inflation by restrictive currency policy together with simultaneous appreciation of exchange rate (or revaluation of central parity) is not in contradiction with Maastricht convergence criteria.

Suggested Citation

  • Mojmír Helísek, 2008. "Accession of the Czech Republic into euro area and Maastricht convergence criteria from the perspective of theory of „impossible trinity“," ACTA VSFS, University of Finance and Administration, vol. 2(2), pages 138-157.
    • Handle: RePEc:prf:journl:v:2:y:2008:i:2:p:138-157
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    References listed on IDEAS

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    More about this item

    Keywords

    Euro; euro area; convergence criteria; impossible trinity; ERM IIII;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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