Growth and Regional Development in an Enlarged European Union
Edited by Gertrude Tumpel-Gugerell and Peter Mooslechner
Chapter 13: Real and nominal convergence: implications for macroeconomic policies
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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