Maastricht-Type Integration, Uncertainty, and Macroeconomic Performance - The European Experience

In a monetary union of the European type the reduction in exchange rate uncertainty alone cannot account for the differences in the economic performance of its member countries. It is shown that traditionally unstable countries like Portugal and Ireland benefit from the decline in uncertainty about inflation and interest rates while traditionally stable countries do not. The reduced uncertainty about becoming a full member of the monetary union leads to more stability in inflation and interest rates in accession countries. For countries outside the monetary union, the prospect of joining shortens the adjustment period available for structural economic reforms.