inflation bias as monetary policy tries to exploit nominal wage contracts to address labour-market distortions Although an … inflation target eliminates this inflation bias, it creates a conflict between monetary policy and discretionary fiscal policy …

), the problem of instability is simply transferred to inflation rate differentials, what we call the (impossibility of the …) "uncovered inflation rate parity condition" in a monetary union. The analysis of the actual divergences and imbalances in the EMU …, then, suggests that failure to respect the "uncovered inflation rate parity condition" in a monetary union may lead to …