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European Monetary Union: a cointegration analysis

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journal contribution
posted on 21.05.2021, 15:50 by Alfred A Haug, Leo Michelis
This paper employs systems-based cointegration techniques developed by [Reference to Johansen] and [Reference to Johansen] to determine which European Union countries would form a successful Economic and Monetary Union (EMU), based on long-run behavior of the nominal convergence criteria laid down in the Maastricht treaty. The original 12 European Union countries are analyzed together. Nominal exchange rates, real exchange rates, long-term interest rates, and government budget deficits are each analyzed for co-movements among the 12 countries and various subgroups of them. The results suggest that not all of the 12 original countries of the European Union can form a successful EMU over time, unless several countries make significant adjustments.