THE SGP and the ECB an exercise in asymmetry
AbstractUsing panel data for the Euro Area countries in the period since 1972 this paper explores, in the context of a small model of the E.U. economy, the degree to which macroeconomic policy has been asymmetric. It shows in particular that monetary policy has been much more responsive to threats that inflation would lie outside the price stability target than to equal sized shocks within the target zone. Similarly monetary policy has responded to threats of large positive and negative output gaps but has remained largely unresponsive to smaller divergences. It thus appears that the ECB and its predecessors have been avoiding ‘fine-tuning’ but have been aggressive in responding to substantial threats to macroeconomic stability. In the light of this finding one can reflect on the asymmetries in the Stability and Growth Pact (SGP) that imposes penalties on excessive budgetary deficits. This paper examines the sense of the SGP, as revised in March 2005, in light of these findings, and the role the ECB plays vis-à-vis these policies. In particular it considers the new provisions for behavior in 'good times' and improved governance.
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Bibliographic InfoArticle provided by Capco Institute in its journal Journal of Financial Transformation.
Volume (Year): 19 (2007)
Issue (Month): ()
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Asset prices; Monetary policy; European Union;
Find related papers by JEL classification:
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
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- Karsten Staehr, 2007.
"Fiscal Policies and Business Cycles in an Enlarged Euro Area,"
CESifo Working Paper Series
1933, CESifo Group Munich.
- Staehr, Karsten, 2008. "Fiscal policies and business cycles in an enlarged euro area," Economic Systems, Elsevier, vol. 32(1), pages 46-69, March.
- Karsten Staehr, 2007. "Fiscal policies and business cycles in an enlarged euro area," Bank of Estonia Working Papers 2007-03, Bank of Estonia, revised 08 Mar 2007.
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