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Managing economic convergence and financial stability in the czech republic

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  • Oldřich Dědek

Abstract

This article addresses the issue of macroeconomic policies in the pre-accession period. The key theme is an assessment of the relationship between the real and nominal convergence of the candidate countries towards the EU. Support for real convergence cannot procced on a long-term basis in contradiction to the nominal convergence criteria. Despite a renewal of growth in 1999, a whole range of persisting structural problems, chiefly in the fiscal area, confirm the benefit of voluntary pursuance of the nominal concergence criteria. Fof the central bank, the inflation criterion is particularly relevant. The issue of catchingup with the EU price level is discussed from this point of view. Neither the theoretical models (the law of one price and the Balassa-Samuelson effect) nor the empirical evidence provide arguments for abandoning the efforts for price stability. The most appropriate monetary policy regime linking the interests of monetary policy and government economic policy is inflation targeting.

Suggested Citation

  • Oldřich Dědek, 2002. "Managing economic convergence and financial stability in the czech republic," Prague Economic Papers, Prague University of Economics and Business, vol. 2002(2), pages 121-134.
    • Handle: RePEc:prg:jnlpep:v:2002:y:2002:i:2:id:191
    DOI: 10.18267/j.pep.191
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    References listed on IDEAS

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    1. Ilan GOLDFAJN & Gino OLIVARES, 2001. "Can Flexible Exchange Rates Still “Work” In Financially Open Economies?," G-24 Discussion Papers 8, United Nations Conference on Trade and Development.
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    More about this item

    Keywords

    inflation targeting; accession process; policy mix; nominal and real convergence; price level; Balassa-Samuelson effect; one price law;
    All these keywords.

    JEL classification:

    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • F02 - International Economics - - General - - - International Economic Order and Integration
    • F15 - International Economics - - Trade - - - Economic Integration

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