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Money Rules for the Eurozone Candidate Countries


Lucjan T. Orlowski


Sacred Heart University - John F. Welch College of Business

February 2004

ZEI Working Paper No. B05-2004

Abstract:     
This study proposes the adoption of money growth rules as indicator variables of monetary policies by the countries converging to a common currency system, in particular, by the eurozone candidate countries. The analytical framework assumes an inflation target as the ultimate policy goal. The converging countries act in essence as "takers" of the inflation target, which, in this case, is the eurozone's inflation forecast. The study advances a forward-looking money growth model that might be applied to aid monetary convergence to the eurozone. However, feasibility of adopting money growth rules depends on stable relationships between money and target variables, which are low inflation and stable exchange rate. Long-run interactions between these variables are examined for Poland, Hungary and the Czech Republic by employing a Johansen cointegration test, along with short-run effects assessed with a vector error correction procedure.

Number of Pages in PDF File: 38

Keywords: Common currency system, eurozone, monetary convergence, money growth rules, inflation targeting

JEL Classification: E42, E52, F36, P24

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Date posted: February 10, 2005  

Suggested Citation

Orlowski, Lucjan T., Money Rules for the Eurozone Candidate Countries (February 2004). ZEI Working Paper No. B05-2004. Available at SSRN: http://ssrn.com/abstract=664823 or http://dx.doi.org/10.2139/ssrn.664823

Contact Information

Lucjan T. Orlowski (Contact Author)
Sacred Heart University - John F. Welch College of Business ( email )
5151 Park Avenue
Fairfield, CT 06825
United States
203-371-7858 (Phone)
HOME PAGE: http://www.sacredheart.edu/ltorlowski.cfm
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