Monetary and Fiscal Policy in the European Monetary Union
AbstractThe introductory phase of the European Monetary Union (EMU) ended with the introduction of the euro currency in 2002. We present a review of the experiences with the new monetary union. Using a Taylor rule, we analyze the conduct of monetary policy by the European Central Bank (ECB). The empirical results suggest that the ECB applies similar weights to inflation and the output gap as the Bundesbank in the past, but more than proportionate weight to economic developments in Germany and France. Next, we show that the link between monetary developments and inflation in the euro area is empirically very stable. ECB monetary policy was too loose in the first four years to keep inflation below the ECB's upper limit of 2 percent defining price stability. In the last section, we analyze the fiscal framework of EMU and show that it has not succeeded in safeguarding fiscal discipline, especially in the large member states.
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Bibliographic InfoArticle provided by Institute for Monetary and Economic Studies, Bank of Japan in its journal Monetary and Economic Studies.
Volume (Year): 20 (2002)
Issue (Month): S1 (December)
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Find related papers by JEL classification:
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
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- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
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- Virginie Traclet, 2004. "Monetary and Fiscal Policies in Canada: Some Interesting Principles for EMU?," Working Papers 04-28, Bank of Canada.
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