Catch-Up Inflation and Nominal Convergence: The Balancing Act for New EU Entrants
Posted: 13 Dec 2006
Abstract
The paper addresses some of the macroeconomic implications of the simultaneous pursuit of the goals of nominal and real convergence in the presence of a fast and sustained catch-up process. It is argued that when pursued simultaneously, nominal and real convergence may give rise to conflicting policy targets for the new EU members and acceding countries. The reason is that a fast catch-up process within a rigid macroeconomic framework is very likely to be accompanied by catch-up inflation, which is an equilibrium feature of this process. The paper proposes a simple accounting framework which is used to simulate the likely range of the expected catch-up inflation in the new EU members and acceding countries and discusses some of the related policy implications.
Keywords: Nominal convergence, Real convergence, Price convergence, Catch-up inflation
JEL Classification: E31, E61, F31, O49
Suggested Citation: Suggested Citation