1 / 18

Euro Area Adjustment Dynamics: Policy Implications and Maastricht Criteria Compliance

Explore adjustment dynamics in the euro area, policy implications for current members and new EMU applicants. Understand the competitiveness and real interest rate channels of adjustment, implications of Maastricht criteria for inflation, interest rates, and fiscal policy. Learn about GDP growth, employment rate, and export performance in the euro area.

ismail
Download Presentation

Euro Area Adjustment Dynamics: Policy Implications and Maastricht Criteria Compliance

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Section 4. Adjustment within the euro area References: • The 2006 EU Economy Review: adjustment dynamics in the euro area • Bruegel Policy No. 3 • P. Lane, “The Real Effects of EMU”, IIIS Discussion Paper No. 115 • Ahearne, Schmitz and von Hagen (2007)

  2. Preliminaries • Real effective exchange rate • Real GDP growth and contributions • The “competitiveness” channel of adjustment • The “real interest rate” channel of adjustment

  3. Inflation

  4. Long-term interest rates

  5. Euro-dollar

  6. GDP growth

  7. Average GDP growth

  8. Employment rate

  9. Labour productivity

  10. Relative export performance

  11. Bruegel policy brief 3 • What are the policy implications for current members? • What are the policy implications for new EMU applicants?

  12. Policy implications for current members • Make sure divergence does not get any worse • Boost the “competitiveness channel” • Don’t do procyclical fiscal policy • Enhance prudential and regulatory policies

  13. Race to the euro

  14. Maastricht criteria • Price stability criterion: inflation does not exceed by more than 1½ percentage points that of the three best-performing EU members • The exchange rate criterion: requires the observance of the normal fluctuation margins of the exchange rate mechanism (ERM II) for at least two years without severe tensions

  15. Maastricht criteria • Long-run interest rate criterion: nominal interest rate do not exceed by more than 2 percentage points that of the three best-performing EU members • General government budget deficit must not exceed 3 percent of GDP; Gross government debt must not exceed 60 percent of GDP.

  16. GDP growth

  17. Implications for new EMU applicants • Maastricht criteria might be too strict (Balassa-Samuelson)

More Related