The Maastricht Inflation Criterion: How Unpleasant Is Purgatory?
IMF Working Papers, June 1, 2006
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Bibliographic details
- Authors: Aleš Bulíř, Jaromír Hurník
- Published: June 1, 2006
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451864144.001
Summary findings
- The Maastricht inflation criterion was designed in the early 1990s to align "high-inflation" EU countries with "low-inflation" countries prior to the introduction of the euro.
- The criterion has positively influenced the public stance toward low inflation.
- The criterion has biased the choice of the disinflation strategy toward short-run, fiat measures—rather than adopting structural reforms with longer-term benefits.
- This bias has "unpleasant consequences for the efficiency of the eurozone transmission mechanism."
- The criterion is unnecessarily tight for new member countries because it "mainly reflects cyclical developments."
Policy analysis and implications
- Short-run, fiat disinflation measures have been favored over structural reforms, implying potential long-term costs for eurozone monetary transmission and efficiency.
- For new EU member countries, the tightness of the criterion may impose undue constraints given the cyclical nature of the inflation signals it captures.
- The trade-off highlighted suggests a need to reassess the criterion’s calibration or its application to new members to avoid discouraging structural reforms that yield longer-term benefits.