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The Maastricht Inflation Criterion: What is the Effect of European Union Enlargement?
Author(s) -
LEWIS JOHN,
STAEHR KARSTEN
Publication year - 2010
Publication title -
jcms: journal of common market studies
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.54
H-Index - 90
eISSN - 1468-5965
pISSN - 0021-9886
DOI - 10.1111/j.1468-5965.2010.02069.x
Subject(s) - maastricht treaty , inflation (cosmology) , economics , counterfactual thinking , european union , resizing , value (mathematics) , international economics , monetary economics , econometrics , european integration , statistics , mathematics , psychology , physics , theoretical physics , social psychology
According to the Maastricht Treaty, a country seeking to join the European Monetary Union cannot have an inflation rate in excess of 1.5 per cent plus the average inflation rates in the three ‘best performing’ EU countries. This inflation reference value is a non‐increasing function of the number of EU members. A counterfactual analysis of historical data shows that the effect of enlarging the EU from 15 to 27 countries was sizeable in 2002–04 and again from 2007. Monte Carlo simulations suggest that the enlargement of the EU from 15 to 27 members reduces the inflation reference value by 0.15–0.2 percentage points on average, but there is a considerable probability of a larger reduction at any given moment of time. The treatment of countries with negative inflation rates in the calculation of the reference value has a major impact on the results.