Monetary Convergence of the EU Candidates to the Euro: A Theoretical Framework and Policy Implications
Lucjan T. Orlowski
Sacred Heart University - John F. Welch College of Business
ZEI Working Paper No. B 25-2001
A flexible approach to direct inflation targeting is a viable monetary policy choice for transition economies that is believed to facilitate both the economic transition and the monetary convergence to the euro. Following this assumption, an analytical model investigating the link between the inflation process and monetary variables in transition economies is advanced in this study. The empirical testing is conducted for Poland, the Czech Republic and Hungary. The analysis recommends that the monetary convergence begins with inflation targeting and concludes with a full-fledged euroization. It further advocates the application of flexible benchmarks of monetary convergence that would accommodate various non-monetary factors affecting inflation in transition economies.
Number of Pages in PDF File: 32
JEL Classification: E32, E52, P33
Date posted: February 10, 2005