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Fiscal policy independence in a European Monetary Union

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Author Info

  • Paul Masson
  • Jacques Melitz

Abstract

Do plans for a monetary union in Europe call for limits on the freedom of the country members of the union to use fiscal policy? In order to provide a tentative answer, we simulate the IMF model MULTIMOD, given various shocks, in the case of a European Monetary Union consisting only of France and Germany. The results clearly indicate the possible value of allowing unfettered use of fiscal policy in both countries. The reasons lie partly in differences in the initial position of the two, partly in differences in their preferences. We also examine the change in the policy significance of the current account in the monetary union. Current account imbalances clearly cease to have the same significance in a monetary union; but they do not therefore become irrelevant. Copyright Kluwer Academic Publishers 1991

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File URL: http://hdl.handle.net/10.1007/BF01886896
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Bibliographic Info

Article provided by Springer in its journal Open Economies Review.

Volume (Year): 2 (1991)
Issue (Month): 2 (June)
Pages: 113-136

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Handle: RePEc:kap:openec:v:2:y:1991:i:2:p:113-136

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Web page: http://www.springerlink.com/link.asp?id=100323

Related research

Keywords: European Monetary Union; terms of trade; current account balance; fiscal policy; Mundell-Fleming;

References

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  1. Dooley, Michael P. & Isard, Peter, 1991. "A note on fiscal policy, investment location decisions, and exchange rates," Journal of International Money and Finance, Elsevier, vol. 10(1), pages 161-168, March.
  2. Jacob A. Frenkel & Morris Goldstein & Paul R. Masson, 1989. "International dimensions of monetary policy: coordination versus autonomy," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 183-243.
  3. Matthew B. Canzoneri, 1983. "Monetary policy games and the role of private information," International Finance Discussion Papers 249, Board of Governors of the Federal Reserve System (U.S.).
  4. Cohen, Daniel & Wyplosz, Charles, 1989. "The European Monetary Union: An Agnostic Evaluation," CEPR Discussion Papers 306, C.E.P.R. Discussion Papers.
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Citations

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Cited by:
  1. Fabrice Capoen & Jérôme Creel, 2007. "Efficiency of stability-oriented institutions: the European case," Sciences Po publications N°2007-06, Sciences Po.
  2. Jacques Mélitz, 1991. "Brussels on a single money," Open Economies Review, Springer, vol. 2(3), pages 323-336, October.
  3. R. Sean Craig, 1994. "Who will join EMU? Impact of the Maastricht convergence criteria on economic policy choice and performance," International Finance Discussion Papers 480, Board of Governors of the Federal Reserve System (U.S.).
  4. Michel Aglietta & Merih Uctum, 1995. "Fiscal consolidation in Europe," Research Paper 9519, Federal Reserve Bank of New York.
  5. Joseph Daniels & David VanHoose, 1998. "Two-Country Models of Monetary and Fiscal Policy: What Have We Learned? What More Can We Learn?," Open Economies Review, Springer, vol. 9(3), pages 265-284, July.
  6. Bayoumi, Tamim & Masson, Paul R, 1994. "Fiscal Flows in the United States and Canada: Lessons for Monetary Union in Europe," CEPR Discussion Papers 1057, C.E.P.R. Discussion Papers.
  7. Bohn, Frank, 2006. "Maastricht Criteria versus Stability Pact," Journal of Policy Modeling, Elsevier, vol. 28(3), pages 247-276, April.
  8. Christodoulakis, Nicos & Garratt, Anthony & Currie, David, 1996. "Target zones and alternative proposals for G3 policy coordination: An empirical evaluation using GEM," Journal of Macroeconomics, Elsevier, vol. 18(1), pages 49-68.
  9. Jensen, Svend Erik Hougaard & Jensen, Lars Grue, 1995. "Debt, deficits and transition to EMU: A small country analysis," European Journal of Political Economy, Elsevier, vol. 11(1), pages 3-25, March.
  10. Charles Goodhart, 2006. "Replacing the Stability and Growth Pact?," Atlantic Economic Journal, International Atlantic Economic Society, vol. 34(3), pages 243-259, September.
  11. Andrew Atkeson & Tamim Bayoumi, 1993. "Do private capital markets insure regional risk? Evidence from the United States and Europe," Open Economies Review, Springer, vol. 4(3), pages 303-324, September.

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