Theoretical And Empirical Analysis Of The Euro Area Price Stability Target

Since the establishment of euro area in 1999, European Central Bank has made its monetary policy target of price stability in priority. To make sure price stability in euro area, many systems and instruments have been taken into practisce, which, however, are proved to be faulty from the experience of circulation of euro. Several member countries disagree with the convergence criteria stipulated in Maastricht Treaty (especially its criteria in fiscal deficit), and the provisions on fiscal deficit in Stability and Growth Pact.In this thesis, proceeding with elements resulting in unstable price within monetary union, the author anatomizes four kinds of unsymmetric shock: unsymmetric shock caused by demand pulling; unsymmetric shock caused by cost pushing; structural unsymmetric shock; and unsymmetric shock caused by differentiation in government policy preference. Based on the above theoretical analyze, and combining the traditional optimum currency areas theory (OCA) and endogeneity of OCA, the author probes into adjusting mechanism to unsymmetric shock and proves the validity of endogeneity of OCA with the latest data. The final studying outcomes indicate that OCA and its endogeneity theory may well cope with the first three kinds of unsymmetric shock; while to the last one, current economic managing system could not tackle with. So the dispersive fiscal policy belonging to member countries has become the largest obstacle in price stability in eruo area. Finally, some advice and suggestions are offered to reform Stability and Growth Pact.