Growth and Regional Development in an Enlarged European Union
Edited by Gertrude Tumpel-Gugerell and Peter Mooslechner
Chapter 15: How to balance real and nominal convergence? The case of Poland
Pawe- Durjasz and Jakub Borowski l 15.1. INTRODUCTORY REMARKS The current EU and EMU enlargement agenda poses numerous challenges for macroeconomic policy in the accession countries in general and for monetary and exchange rate policy in particular. One of the key issues which should be resolved in the run-up to accession is ﬁnding a balance between real and nominal convergence. While the former is generally associated with the process of closing the income gap between the EU and the aspirant countries, the latter reﬂects the necessity to pursue an eﬀective control over nominal variables such as the inﬂation rate and other closely related measures of nominal convergence (interest rates, exchange rates). Stated diﬀerently, central banks in the accession countries are faced with the problem of ﬁnding an optimum between the indisputable beneﬁts stemming from real convergence and the costs attributable to the process of delivering price stability. Once viewed from the institutional perspective, this choice reﬂects the necessity to cope with the Maastricht convergence requirements while simultaneously watching for the Copenhagen criterion on the capacity to cope with competitive pressures and market forces within the Union. This chapter addresses the dilemma and its implications for the future stance of monetary and exchange rate policies in Poland. Before analysing various aspects of the optimum-choice problem outlined above, let us highlight the theoretical background of the real convergence phenomenon and its relation to the issue of nominal convergence. The theoretical underpinnings of real convergence originate from...
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