Proposals have been made for the institution of a European Central Bank or similar institution to conduct an independent monetary policy in terms of a single European Currency with the exclusive purpose of controlling the rate of price inflation, budgetary policies being left largely in the hands of national fiscal authorities. It is suggested in this note that such a divorce between a central monetary policy for the control of inflation and a set of national fiscal policies for the control of budget balances could lead to an unstable outcome. The conditions in which such instability may occur are examined. A more general case is made for not divorcing monetary policy from fiscal policy, and various methods of dealing with this problem are discussed. Copyright 1990 by Oxford University Press.
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Volume (Year): 6 (1990) Issue (Month): 4 (Winter) Pages: 100-107 Download reference. The following formats are available: HTML
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