Money Rules for Monetary Convergence to the Euro

Posted: 9 Feb 2005  

Lucjan T. Orlowski

Sacred Heart University - John F. Welch College of Business

Abstract

This study examines feasibility of adopting money growth rules as indicator variables of monetary policies for the countries converging to a common currency system, in particular, to the euro. The analytical framework assumes inflation target as the ultimate policy goal. The converging countries act as "takers" of inflation target, in this case, the eurozone's inflation forecast. The study advances a forward-looking money growth model that might be applied to aid monetary convergence to the euro. 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 the Johansen cointegration test, along with short-run effects assessed with a vector error correction procedure.

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

JEL Classification: E42, E52, F36, P24

Suggested Citation

Orlowski, Lucjan T., Money Rules for Monetary Convergence to the Euro. Journal of Policy Modeling, Vol. 26, No. 7, pp. 817-837, October 2004. Available at SSRN: https://ssrn.com/abstract=664190

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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