Risks and challenges of monetary strategy for euro adoption

The paper evaluates some policy dilemmas the Czech monetary policy will face on the way towards adopting common currency. The assessment of the inflation criterion concentrates on the potential clash with so called real convergence showing that alleged negative influences on the catching-up process seem to be exaggerated. The reasons leading to some scepticism about the ERM-II arrangement are further explained with distinction placed on eligibility and regime selection motives when applying for the ERM-II membership. Finally, the pros and cons of inflation targeting are discussed from the perspective of promoting the fulfilment of Maastricht requirements. Attention is paid to the issue of optimal exit form inflation targeting having in mind the priority of entering Eurozone with a proper conversion rate.

Keywords: inflation targeting, nominal and real convergence, euro adoption, Maastricht criteria, ERM-II membership