Economic Convergence and Divergence in Europe
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Economic Convergence and Divergence in Europe

Growth and Regional Development in an Enlarged European Union

Edited by Gertrude Tumpel-Gugerell and Peter Mooslechner

This highly topical book addresses the challenge of economic convergence within Europe, beginning with a thorough review of the theory of growth and related empirical research. Historical and more recent economic developments within the present EU and current accession countries are discussed, along with the design for the process of further integration of accession countries into the EU and the Euro area. Moreover, the potential to achieve a sustainable catch-up process in Western Balkan countries, the Ukraine and Russia is explored, focusing on the task facing the EU in designing proper policies vis-à-vis these countries. The contributors’ varied perspectives ensure that the theories and policies postulated are linked closely with the actual situation in accession countries and offer up-to-date insights.
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Chapter 13: Real and nominal convergence: implications for macroeconomic policies

Ales Capek


Ales Capek ˇ ˇ 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 contribution 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 its relevance for nominal convergence and on the...

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