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The steady-state budget constraint and the integration of european financial markets: an arithmetical exercise

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Author Info
José Ramalho
Abstract

This paper calculates the effect of European financial integration on the long-run sustainable budgetary situations of individual countries and highlights the adjustments required in order to conform with "integrated" and "domestic" steady-state scenarios. In the relative tightening/loosening of the steady-state budget constraint in comparing scenarios, the change in the real rates of interest is shown to play a central role, while the effect of the change in the reserve system variables is a minor one and that of the change in the rates of inflation is only significant in the highest inflation countries. Different factors are at play in the relative tightening/loosening of the steady-state budge constraint in small northern and southern countries. The tightening/loosening of the steady-state budget constraint between the "domestic" and "integrated" scenarios has implications for the comparative conduct of fiscal policy, in particular, taxation.

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Paper provided by Bank for International Settlements in its series BIS Working Papers with number 14.

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Length: 64 pages
Date of creation: Sep 1990
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Handle: RePEc:bis:biswps:14

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  1. Michael R. Darby, 1984. "Some pleasant monetarist arithmetic," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr. [Downloadable!]
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  2. Thomas M. Supel & Richard M. Todd, 1984. "Should currency be priced like cars?," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr. [Downloadable!]
  3. Preston J. Miller, 1983. "Budget deficit mythology," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall. [Downloadable!]
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