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Nominal and Real Convergence in Spain, Portugal and Greece During Their Accession to the EMU

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  • Marek Jarocinski

Abstract

This paper reports the progress of nominal and real convergence of Spain, Portugal and Greece during their accession to the Economic and Monetary Union (EMU). When the EMU was designed, it was hoped that it would induce nominal convergence (convergence of interest rates and inflation rates) and stimulate investments and economic growth through its positive microeconomic effects. As had been expected, nominal interest rates have converged quite early during the accession, output has been growing fast, and the countries experienced an inflow of foreign direct investments (FDI) and an increase of domestic investment rates. However, once within the EMU, all three countries experienced persistently higher inflation rates, which may be consistent with the convergence of price levels, instead of inflation. While all the above phenomena can be related to the EMU accession, in an econometric estimation for Spain in which we control for macroeconomic policies, we are unable to detect significant microeconomic effects of the EMU. Therefore, we conclude that it is the policies induced by the necessity to satisfy the Maastricht criteria that matter primarily for the macroeconomic performance soon after accession. In any case, the experience of the SPG is encouraging for the new member states facing accession to the EMU in the future.

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  • Marek Jarocinski, 2003. "Nominal and Real Convergence in Spain, Portugal and Greece During Their Accession to the EMU," CASE Network Studies and Analyses 0256, CASE-Center for Social and Economic Research.
    • Handle: RePEc:sec:cnstan:0256
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    References listed on IDEAS

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    1. Andrew Mountford & Harald Uhlig, 2009. "What are the effects of fiscal policy shocks?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 24(6), pages 960-992.
    2. Enrique Alberola, 2000. "Interpreting inflation differentials in the euro area," Economic Bulletin, Banco de España, issue APR, pages 61-70, April.
    3. Eva Ortega, 2003. "Persistent inflation differentials in Europe," Economic Bulletin, Banco de España, issue JAN, pages 71-75, January.
    4. Sergio de Nardis & Claudio Vicarelli, 2003. "The Impact of Euro on Trade: The (Early) Effect is not so Large," ISAE Working Papers 31, ISTAT - Italian National Institute of Statistics - (Rome, ITALY).
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    1. Wisniewski, Anna, 2005. "A visegrádi országok felkészültsége a GMU-csatlakozásra [Tension in the Visegrád countries over EMU accession]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(9), pages 664-682.
    2. Marek Dabrowski, 2006. "A Strategy for EMU Enlargement," Springer Books, in: Marek Dabrowski & Jacek Rostowski (ed.), The Eastern Enlargement of the Eurozone, chapter 0, pages 199-225, Springer.

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