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Since the signing of the Mastricht Treaty, there has been an intensivediscussion whether the convergence criteria incorporated into the contract wereappropriate to prepare the EU-member-countries for European Monetary Union.We argue that at least inflationary convergence was not a necessary preconditionfor EMU. This paper aims at analyzing the effects of the inflation criterion withregard to its possible influence on welfare of the.EU-member-states during thetransitional phase (stage II). It is shown that the inflation criterion can beinterpreted as a component of an incentive compatible contract; insofar it hascontributed to a decrease in inflation bias during stage II of EMU but played noimportant role with respect to stage III.JEL classification: E58, F15, F3