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Alternative monetary policies and fiscal regime in new EU members

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  • Mikek, Peter

Abstract

I investigate the relevance of a fiscal regime for disinflation in new EU member states (NMS). I generalize the framework of [Obstfeld, M., Rogoff, K., 1995. Exchange rate dynamics redux. Journal of Political Economy 103, 624-660] to incorporate the non-Ricardian fiscal regime and two monetary feedback rules: inflation targeting and depreciation targeting. Euro accession requires disinflation and stabilization of the exchange rate and thus restrictive monetary policy. The model illustrates that a sustainable and prudent fiscal policy is a necessary condition for successful stabilization of inflation. Thus, the lack of prudent fiscal policy, through its effects on inflation, may undermine the EMU accession of large NMS even when their fiscal outcomes fall within the Maastricht range.

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Bibliographic Info

Article provided by Elsevier in its journal Economic Systems.

Volume (Year): 32 (2008)
Issue (Month): 4 (December)
Pages: 335-353

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Handle: RePEc:eee:ecosys:v:32:y:2008:i:4:p:335-353

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Keywords: Monetary union Monetary feedback Inflation targeting Fiscal regime New member states;

References

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Cited by:
  1. Ayala, Astrid & Blazsek, Szabolcs, 2013. "Structural breaks in public finances in Central and Eastern European countries," Economic Systems, Elsevier, vol. 37(1), pages 45-60.
  2. Czudaj, Robert, 2011. "P-star in times of crisis - Forecasting inflation for the euro area," Economic Systems, Elsevier, vol. 35(3), pages 390-407, September.

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