Abstract
Fast growing countries wishing to join a slow growing monetary union may experience growth costs since they have to rely on deflationary policies to tackle balance of payments deficits following the loss of their exchange rate policy. This paper provides evidence that the Cyprus economy is growing at a rate that does not exceed its balance of payments equilibrium growth rate. This suggests that, within EMU, the country will be able to maintain its current growth rate without any resulting balance of payments problems. Thus, there will be no need for deflationary policies that can have an adverse impact on economic growth.
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