Economic inequality in the new European Union: Are monetary policies in the European Union unfair for certain countries?

Gregory Eric Banach

Abstract

This research is focused on the affect one uniform monetary policy will have on the less developed countries that entered the European Union (EU) in 2004. One of the challenges facing the new entrants involves the required implementation of monetary policy goals, even though these new entrants do not have a vote on how the monetary policy is determined. Monetary policy in the EU is the responsibility of the European Central Bank (ECB) who has a stated goal price stability. It is possible to use the Taylor Rule to test whether the ECB focuses on price stability for both old and new member countries. If the Taylor rule indicates that ECB monetary policy movements addressed price stability for old members but not new members then this might be used as evidence that the ECB is not achieving its stated goals. The research seeks to answer the following question. During the period of March 2004 through March 2007, did the Taylor Rule apply to old and new member countries in the Euro-Area? If the results of the study point to a substantial discrepancy in applicability of the Taylor Rule for the old members but not the new members then there might be evidence that the ECB is not acting in the best interests of the Euro-area community as whole.