By Francisco Torres, Francesco Giavazzi
This quantity analyzes the eu Community's transition to monetary and fiscal union (EMU) within the gentle of the agreements reached at Maastricht final 12 months. It derives from a convention held by means of the CEPR and the financial institution of Portugal, and comprises between its members a few famous educational commentators on ecu integration. the problems addressed within the quantity contain: the connection among a typical foreign money and inflation convergence; the results of financial unification on Europe's more and more built-in monetary markets and monetary platforms; and EMU's implications for the EC's long term progress.
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Additional info for Adjustment and Growth in the European Monetary Union
More important to the likely evolution of the ECU market than this residual and unavoidable uncertainty is the removal, by the Maastricht decisions on afirmtimetable, of any doubt that full EMU will be achieved by at least some EC member states in this decade. 3 Stage II: how does it end? This more definitive timetable is assured by Article 109 j-1. Article 109 j institutes a regular reporting procedure for the Commission and the EMI throughout the second stage. In their regular reports to ECOFIN the two bodies will monitor progress in the move towards independence for the national central banks and 'the achievement of a high degree of sustainable convergence' in terms of inflation, avoidance of 'excessive deficits', observance of normal fluctuation margins in the EMS and convergence of long term interest rates.
The failure of the simple target zone model to account for the behaviour of ERM members' exchange rates could not be attributed to errors in the measurement of expectations, as is often supposed, because the results which the authors obtained from survey data were no more supportive than those based on interest rates. The model's failure is more likely due to its implicit - and implausible assumption that the credibility of exchange rates is constant. It was pointed out during the conference that the main weakness of the simple target zone model was the assumption of rational expectations in the foreign exchange market, for which there is no evidence in favour and a great deal against.
Rebelo focuses on a different explanation: he suggests that the process of transition toward the steady state of an economy with low capital stock can also be responsible for an appreciation of the relative price of non-tradables. It was pointed out during the conference that Japan's inflation rate had persistently remained five or more percentage points above that of the USA throughout the 1950-70 period, without any loss of competitiveness. In fact, consumer prices may not be a very good indicator of competitiveness; the prices of traded goods - or unit factor costs - may give a more accurate picture.