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The Maastricht inflation criterion : what is the effect of expansion of the European Union ?

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  • John Lewis
  • Karsten Staehr

Abstract

Following the Maastricht criteria, a country seeking to join the European Monetary Union cannot have inflation in excess of 1.5 percent plus the average inflation in the three "best performing" EU countries. This inflation reference value is a non-increasing function of the number of EU members. Looking backwards, the effect of increasing the number of EU countries from 15 to 27 would have been sizeable in 2003 and 2004, but relatively modest since 2005. Monte Carlo simulations show that the expansion of the EU from 15 to 27 members reduces the expected inflation reference value by 0.15-0.2 percentage points, but with a considerable probability of a larger reduction. The treatment of countries with negative inflation in the calculation of the reference value has a major impact on the results

Suggested Citation

  • John Lewis & Karsten Staehr, 2007. "The Maastricht inflation criterion : what is the effect of expansion of the European Union ?," Bank of Estonia Working Papers 2007-11, Bank of Estonia, revised 14 Sep 2007.
    • Handle: RePEc:eea:boewps:wp2007-11
    as

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    File URL: http://www.eestipank.ee/sites/eestipank.ee/files/publication/en/WorkingPapers/2007/_wp_1107.pdf
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    References listed on IDEAS

    as
    1. Lewis, John, 2009. "Hitting and hoping?: Meeting the exchange rate and inflation criteria during a period of nominal convergence," European Journal of Political Economy, Elsevier, vol. 25(4), pages 508-524, December.
    2. 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.
    3. Dobrinsky, Rumen, 2006. "Catch-up inflation and nominal convergence: The balancing act for new EU entrants," Economic Systems, Elsevier, vol. 30(4), pages 424-442, December.
    4. Jonas, Jiri, 2006. "Euro adoption and Maastricht criteria: Rules or discretion?," Economic Systems, Elsevier, vol. 30(4), pages 328-345, December.
    5. Lewis, John, 2009. "Hitting and hoping?: Meeting the exchange rate and inflation criteria during a period of nominal convergence," European Journal of Political Economy, Elsevier, vol. 25(4), pages 508-524, December.
    6. Peter B. Kenen & Ellen E. Meade, 2003. "EU Accession and the Euro: Close Together or Far Apart?," Policy Briefs PB03-09, Peterson Institute for International Economics.
    7. Lars Calmfors & Giancarlo Corsetti & Michael P. Devereux & Seppo Honkapohja & Gilles Saint-Paul & Hans-Werner Sinn & Jan-Egbert Sturm & Xavier Vives, 2007. "EEAG Report on the European Economy 2007," EEAG Report on the European Economy, CESifo, vol. 0, pages 1-156, February.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. AILINCA, Alina Georgeta, 2014. "Nominal Convergence Criteria And Europe 2020 Strategy: Convergent Or Divergent Objectives?," Journal of Financial and Monetary Economics, Centre of Financial and Monetary Research "Victor Slavescu", vol. 1(1), pages 56-65.

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    More about this item

    Keywords

    Maastricht Treaty; European Monetary Union; inflation; convergence;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy

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