If the inflation-targeting country is expected to enter EMU with a specific exchange rate, there is, on the other hand, a risk of wide exchange-rate movements in the run up. With a known entry rate, the spot rate has to move in order to fulfil the interest-rate parity. This issue, trivial as it may seem, is rarely mentioned in the literature.
This means that, in practice, new EMU members need to abandon inflation targeting well before EMU entry and rely on fiscal and structural policies. In Denmark’s experience, this is no hindrance to appropriate economic performance. Monetary policy is reserved for keeping the exchange rate stable and close to the central rate within ERM II.