This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

On Prosperity and Posterity: The Need for Fiscal Discipline in a Monetary Union

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Carsten Detken (European Central Bank)
Vítor Gaspar (European Central Bank)
Bernhard Winkler (European Central Bank)

Additional information is available for the following registered author(s):

Abstract

We show how in a Blanchard-Yaari, overlapping generations framework, perfect substitutability of government bonds in Monetary Union tempts governments to exploit the enlarged common pool of savings. In Nash equilibrium all governments increase their bond financed transfers to current generations (prosperity effect) at the expense of future generations (posterity effect). The resulting deficit bias occurs even if one assumes that before Monetary Union countries had eliminated their deficit bias by designing appropriate domestic institutions. The paper provides a rationale for an increased focus on fiscal discipline in Monetary Union, without the need to assume imperfect credibility of existing Treaty provisions or to refer to extreme situations involving sovereign default. We draw on existing empirical evidence to argue that the degree of government bond substitutability within the European Monetary Union is an order of magnitude larger than in the global economy.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: https://www.ua.pt/egi/ReadObject.aspx?obj=11014
File Format: application/pdf
File Function:
Download Restriction: no

Publisher Info
Paper provided by Departamento de Economia, Gestão e Engenharia Industrial, Universidade de Aveiro in its series Working Papers de Economia (Economics Working Papers) with number 30.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length: 36 pages
Date of creation: Dec 2005
Date of revision:
Handle: RePEc:ave:wpaper:302005

Contact details of provider:
Postal: Campus de Santiago, 3810-193 Aveiro
Phone: +351 234 370 361
Fax: +351 234 370 215
Email:
Web page: http://www.egi.ua.pt/
More information through EDIRC

For technical questions regarding this item, or to correct its listing, contact: (Sílvia Jorge).

Related research
Keywords: fiscal spillover effects; common pool; overlapping generations; bond market integration; fiscal discipline; fiscal rules; European Monetary Union;

Other versions of this item:

Find related papers by JEL classification:
D62 - Microeconomics - - Welfare Economics - - - Externalities
E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization

This paper has been announced in the following NEP Reports:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Kerstin Bernoth & Jürgen von Hagen & Ludger Schuknecht, 2004. "Sovereign risk premia in the European government bond market," Working Paper Series 369, European Central Bank. [Downloadable!]
  2. Christiansen, Charlotte, 2003. "Volatility-Spillover E ffects in European Bond Markets," Finance Working Papers 03-8, University of Aarhus, Aarhus School of Business, Department of Business Studies. [Downloadable!]
  3. Silvia Ardagna & Francesco Caselli & Timothy Lane, 2004. "Fiscal discipline and the cost of public debt service: some estimates for OECD countries," Working Paper Series 411, European Central Bank. [Downloadable!]
    Other versions:
  4. Blanchard, Olivier J, 1985. "Debt, Deficits, and Finite Horizons," Journal of Political Economy, University of Chicago Press, vol. 93(2), pages 223-47, April. [Downloadable!] (restricted)
    Other versions:
  5. Beetsma, Roel & Uhlig, Harald, 1999. "An Analysis of the Stability and Growth Pact," Economic Journal, Royal Economic Society, vol. 109(458), pages 546-71, October. [Downloadable!] (restricted)
  6. Jürgen von Hagen & Ian Harden, 1996. "Budget Processes and Commitment to Fiscal Discipline," IMF Working Papers 96/78, International Monetary Fund.
    Other versions:
  7. repec:bep:eapadv:v:1:y:2001:i:advances/1/1:p:1001-1001 is not listed on IDEAS
    Other versions:
  8. Buiter, Willem H, 1988. "Death, Birth, Productivity Growth and Debt Neutrality," Economic Journal, Royal Economic Society, vol. 98(391), pages 279-93, June. [Downloadable!] (restricted)
  9. Chang, Roberto, 1990. "International coordination of fiscal deficits," Journal of Monetary Economics, Elsevier, vol. 25(3), pages 347-366, June. [Downloadable!] (restricted)
  10. Weil, Philippe, 1987. "Permanent budget deficits and inflation," Journal of Monetary Economics, Elsevier, vol. 20(2), pages 393-410, September. [Downloadable!] (restricted)
  11. Carsten Detken, 1999. "Fiscal policy effectiveness and neutrality results in a non-Ricardian world," Working Paper Series 3, European Central Bank. [Downloadable!]
  12. Lieven Baele & Annalisa Ferrando & Peter Hördahl & Elizaveta Krylova & Cyril Monnet, 2004. "Measuring financial integration in the euro area," Occasional Paper Series 14, European Central Bank. [Downloadable!]
  13. Roel Beetsma & Koen Vermeylen, 2005. "The Effect of Monetary Unification on Public Debt and its Real Return," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  14. Torsten Persson & Guido Tabellini, 2002. "Political Economics: Explaining Economic Policy," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262661314.
  15. Lorenzo Codogno & Carlo Favero & Alessandro Missale, 2003. "Yield spreads on EMU government bonds," Economic Policy, CEPR, CES, MSH, vol. 18(37), pages 503-532, October. [Downloadable!] (restricted)
  16. Fischer, Stanley, 1979. "Capital Accumulation on the Transition Path in a Monetary Optimizing Model," Econometrica, Econometric Society, vol. 47(6), pages 1433-39, November. [Downloadable!] (restricted)
  17. Kevin Sheppard & Robert F. Engle & Lorenzo Cappiello, 2003. "Asymmetric dynamics in the correlations of global equity and bond returns," Working Paper Series 204, European Central Bank. [Downloadable!]
    Other versions:
  18. Weil, Philippe, 1991. "Is Money Net Wealth?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 32(1), pages 37-53, February. [Downloadable!] (restricted)
  19. Weil, Philippe, 1989. "Overlapping families of infinitely-lived agents," Journal of Public Economics, Elsevier, vol. 38(2), pages 183-198, March. [Downloadable!] (restricted)
  20. Cohen, Daniel, 1985. "Inflation, wealth and interest rates in an intertemporal optimizing model," Journal of Monetary Economics, Elsevier, vol. 16(1), pages 73-85, July. [Downloadable!] (restricted)
  21. Restoy, Fernando, 1996. "Interest rates and fiscal discipline in monetary unions," European Economic Review, Elsevier, vol. 40(8), pages 1629-1646, November. [Downloadable!] (restricted)
  22. Robert-Paul Berben & W. Jos Jansen, 2005. "Bond Market and Stock Market Integration in Europe," DNB Working Papers 060, Netherlands Central Bank, Research Department. [Downloadable!]
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Philipp Paulus, 2006. "Brüssel, Frankfurt oder Basel - Wo muss das Problem steigender Staatsschulden in der Europäischen Währungsunion gelöst werden?," Otto-Wolff-Institut Discussion Paper Series 01/2006, Otto-Wolff-Institut für Wirtschaftsordnung, Köln, Deutschland. [Downloadable!]
  2. António Afonso, 2007. "Public finances in Portugal: a brief longrun view," Working Papers 2007/01, Department of Economics at the School of Economics and Management (ISEG), Technical University of Lisbon.. [Downloadable!]
  3. Otmar Issing, 2006. "Europe’s hard fix: the Euro area," International Economics and Economic Policy, Springer, vol. 3(3), pages 181-196, December. [Downloadable!] (restricted)
  4. Jean-Paul Fitoussi & Francesco Saraceno, 2007. "Fiscal Discipline as a Social Norm: The European Stability Pact," Documents de Travail de l'OFCE 2007-22, Observatoire Francais des Conjonctures Economiques (OFCE). [Downloadable!]
    Other versions:
Statistics
Access and download statistics

Did you know? You too can volunteer for RePEc, for example by encouraging others to register as authors.

This page was last updated on 2009-11-15.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.