The relations of real and nominal convergence in the EU with impacts on the euro area participation

by Magdaléna DRASTICHOVÁ

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JEL classification

  • Price Level; Inflation; Deflation
  • Economic Integration

Keywords

comparative price level, GDP per capita, Maastricht criteria, real and nominal convergence, β and σ convergence

Abstract

Real convergence of economies in macroeconomic terms is accompanied by a convergence of nominal variables. The paper analyses provides an analysis of the relationship of the GDP per capita development as an indicator of the real convergence and the development of the comparable price level as a representative of the nominal convergence in relation to the EU average value in the EU economies. Using the concept of convergence, the development of variability of real and nominal convergence indicators among the EU and euro area economies is also evaluated. The Maastricht criteria are an alternative concept of the nominal convergence and their fulfilment interacts with the convergence in previous conceptions. The aim of the paper is to detect relationships between the real and nominal convergence via given indicators within the EU economies, with impacts on the euro area participation regarding the obligations to comply with the Maastricht criteria. In this sense the impacts on the new member Member SsStates are taken into account. It is clear that countries of the EU with lower levels of GDP per capita also achieve also lower price levels and that simultaneous real and nominal convergence is likely to occur in these countries. The Maastricht criteria may lead to negative effects on the catching up economies joining the euro area, which experience simultaneous real and nominal convergence in the above mentioned conceptions.