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The fiscal dimension of a common monetary policy: results with a non-Ricardian global model

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  • Silvia Sgherri

Abstract

The paper studies the interaction of fiscal and monetary policy within an Economic and Monetary Union (EMU). Results suggest that, in a model in which bonds and money are counted as net wealth, an important source of cross-country heterogeneity in response to a common monetary shock is the differences in national economies' budgetary positions. In particular, we note that centralising seigniorage revenues may lead, in the long term, to wealth redistribution across countries. Although institutional arrangements such as the Stability Pact might not be necessary to ensure fiscal sustainability, its strict enforcement is shown to be associated with overall ever-lasting benefits. Transition to the new steady state is, however, likely to be remarkably costly for high-debt EMU countries. Finally, different degrees of efficiency characterising European credit markets do not seem to play a major role in explaining asymmetric responses.

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File URL: http://www.tandfonline.com/doi/abs/10.1080/1351847021000025759
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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal The European Journal of Finance.

Volume (Year): 8 (2002)
Issue (Month): 4 ()
Pages: 449-479

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Handle: RePEc:taf:eurjfi:v:8:y:2002:i:4:p:449-479

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Related research

Keywords: Economic And Monetary Union; Asymmetric Monetary Transmissions; Stability; And Growth Pact; Ricardian Non-NEUTRALITIES; Multimod Mark Iii;

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Cited by:
  1. S. Sgherri, 2000. "When is labour market flexibility welcome? More on asymmetric policy impacts in Europe," WO Research Memoranda (discontinued) 619, Netherlands Central Bank, Research Department.

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