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Ozkan, F. Gulcin
Sibert, Anne
Sutherland, Alan
Year of Publication: 
Series/Report no.: 
EPRU Working Paper Series 2000-03
This paper models the behaviour of a potential entrant into a monetary union where there is an inflation entry condition. In addition to making a monetary policy decision during a qualifying period, the potential entrant must make a decision about structural reform. The paper shows that the entry condition can have two undesirable effects. First, it can lead to multiple equilibria because inflationary expectations acquire a self-fulfilling property. Second, the entry condition can lead to a reduction in the amount of reform. This is because the entry condition reduces inflationary expectations and thus reduces the incentive to reform.
Document Type: 
Working Paper

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