The Maastricht Inflation Criterion: How Unpleasant Is Purgatory?

Author/Editor:

Ales Bulir ; Jaromír Hurník

Publication Date:

June 1, 2006

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

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.

Series:

Working Paper No. 2006/154

Subject:

Disinflation Exchange rates Inflation Output gap Structural reforms

English

Publication Date:

June 1, 2006

ISBN/ISSN:

9781451864144/1018-5941

Stock No:

WPIEA2006154

Pages:

43

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