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Book Title: Economic Convergence and Divergence in Europe
Editor(s): Tumpel-Gugerell, Gertrude; Mooslechner, Peter
Publisher: Edward Elgar Publishing
ISBN (hard cover): 9781843762416
Section: Chapter 13
Section Title: Real and nominal convergence: implications for macroeconomic policies
Author(s): Capek, Ales
Number of pages: 11
Extract:
13. Real and nominal convergence:
implications for macroeconomic
policies
Ales Capek
13.1. REAL CONVERGENCE AND REAL
APPRECIATION
Under real convergence, economists usually understand the process of
catching up in the level of GDP per capita. This process is accompanied by
structural changes in the economy, namely in industry, in the structure of
the labour force and the composition of trade flows. These structural
changes are both preconditions and consequences of real convergence and
reflect the intensifying economic links between the catching-up and the
advanced countries. Empirical research has shown that in this process the
structure of the economy and of trade flows in the accession countries is
gradually moving closer to that of the euro area countries, mainly to that
of their main trading partners, and thus also closer to the concept of an
optimum currency area.
For the central banks the key issue is the link between real and nominal
convergence, with the latter in the narrow sense meaning the convergence
of inflation and interest rates, the achievement of relative exchange rate
stability and compliance with the corresponding three Maastricht criteria.
In a broader sense it also means the fulfilment of the fiscal criteria.
According to economic theory, real convergence is accompanied by the
real appreciation of the currencies of the catching-up countries. This con-
tribution focuses on the time horizon and dynamics of this process, on the
structure of real appreciation under different monetary policy frameworks
and in different phases of the integration process, on ...
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URL: http://www.austlii.edu.au/au/journals/ELECD/2003/19.html