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Fiscal and monetary policy on the way to EMU

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  • Jürgen Hagen
  • Stefan Lutz

Abstract

We present the simulations of fiscal adjustment policies to the Maastricht criteria in the European economies based on a rational-expectations model of the G7 economies. We find that an effort to achieve the fiscal criteria inflicts pronounced recessions on the European economies. Furthermore, the fiscal and the inflation criteria lack consistency. A return to fixed exchange rates in Europe worsens the results of fiscal retrenchment in Europe. All of this implies that a “hard†interpretation of the criteria is neither a desirable nor a credible strategy for EMU. Copyright Kluwer Academic Publishers 1996

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Bibliographic Info

Article provided by Springer in its journal Open Economies Review.

Volume (Year): 7 (1996)
Issue (Month): 4 (October)
Pages: 299-325

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Handle: RePEc:kap:openec:v:7:y:1996:i:4:p:299-325

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

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  1. Francesco Giavazzi & Marco Pagano, 1990. "Can Severe Fiscal Contractions be Expansionary? Tales of Two Small European Countries," NBER Working Papers 3372, National Bureau of Economic Research, Inc.
  2. Bertola, Giuseppe & Drazen, Allan, 1993. "Trigger Points and Budget Cuts: Explaining the Effects of Fiscal Austerity," American Economic Review, American Economic Association, vol. 83(1), pages 11-26, March.
  3. Hughes Hallett, Andrew & McAdam, Peter, 1996. "Fiscal Deficit Reductions in Line with the Maastricht Criteria for Monetary Union: An Empirical Analysis," CEPR Discussion Papers 1351, C.E.P.R. Discussion Papers.
  4. Giavazzi, Francesco & Pagano, Marco, 1995. "Non-Keynesian Effects of Fiscal Policy Changes: International Evidence and the Swedish Experience," CEPR Discussion Papers 1284, C.E.P.R. Discussion Papers.
  5. Fratianni, Michele & von Hagen, Juergen, 1990. "The European Monetary System ten years after," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 32(1), pages 173-241, January.
  6. Fratianni, M. & Von Hagen, J. & Waller, C., 1992. "The Maastricht Way to EMU," Princeton Studies in International Economics 187, International Economics Section, Departement of Economics Princeton University,.
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Cited by:
  1. Frank Bohn, 2004. "Monetary Union and the Interest-Exchange Rate Trade-off," Open Economies Review, Springer, vol. 15(2), pages 111-141, 04.
  2. Belén Fernández Castro, . "El Equilibrio Presupuestario: Las Restricciones Sobre El Déficit," Working Papers 30-04 Classification-JEL , Instituto de Estudios Fiscales.
  3. Aarle, B. van & Engwerda, J.C. & Plasmans, J.E.J. & Weeren, A.J.T.M., 2001. "Macroeconomic policy interaction under EMU: A dynamic game approach," Open Access publications from Tilburg University urn:nbn:nl:ui:12-85061, Tilburg University.
  4. Frank Bohn, 2005. "Maastricht Criteria versus Stability Pact," Working Papers 200506, School Of Economics, University College Dublin.
  5. Bilin Neyaptý & Secil Ozgur, 1999. "The Effects of Fiscal and Monetary Discipline on Budgetary Outcomes : The Case of the European Union," Departmental Working Papers 996, Bilkent University, Department of Economics.
  6. Carlos Mulas-Granados, 2003. "The Trade-Off between Growth & Equality and the Economic Impact of Alternative Fiscal Adjustment Strategies in the EU," European Economy Group Working Papers 20, European Economy Group.

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