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Discussion Paper Details

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Title: Monetary Union, Entry Conditions and Economic Reform

Author(s): F Gulcin Ozkan, Anne Sibert and Alan Sutherland

Publication Date: November 1997

Keyword(s): Convergence, Entry conditions and Monetary Union

Programme Area(s): International Macroeconomics

Abstract: This paper models the behaviour of a potential entrant into a monetary union where there is an inflation entry condition. In addition to making a monetary policy decision during a qualifying period, the potential entrant must make a decision about structural reform. The paper shows that the entry condition can have two undesirable effects. First, it can lead to multiple equilibria because inflationary expectations acquire a self-fulfilling property. Second, the entry condition can lead to a reduction in the amount of reform. This is because the entry condition reduces inflationary expectations and thus reduces the incentive to reform.

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Bibliographic Reference

Ozkan, F, Sibert, A and Sutherland, A. 1997. 'Monetary Union, Entry Conditions and Economic Reform'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=1720