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Fiscal Policy in the European Monetary Union

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Author Info

  • Betty C. Daniel

    ()
    (University at Albany)

  • Christos Shiamptanis

    ()
    (Central Bank of Cyprus)

Abstract

An EMU country that adheres to the Maastricht and the Stability and Growth Pact limits is implicitly promising not to allow its fiscal stance to deteriorate to a position in which it places pressure on the European Central Bank to forgo its price level target to finance fiscal deficits. Violation of these limits has raised questions about potential fiscal encroachment on the monetary authority’s freedom to determine the price level. We show that for the monetary authority to have the freedom to control price, the primary surplus must respond strongly enough to lagged debt. Panel estimates are consistent with monetary control of the price level.

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Bibliographic Info

Paper provided by Central Bank of Cyprus in its series Working Papers with number 2009-1.

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Length: 40 pages
Date of creation: Jul 2009
Date of revision:
Handle: RePEc:cyb:wpaper:2009-1

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Web page: http://www.centralbank.gov.cy/nqcontent.cfm?a_id=1
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Related research

Keywords: European Monetary Union; monetary policy; fiscal policy; Fiscal Theory of the Price Level; panel cointegration; error correction;

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References

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Citations

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Cited by:
  1. Betty C. Daniel & Christos Shiamptanis, 2010. "Sovereign Default Risk in a Monetary Union," Working Papers 2010-3, Central Bank of Cyprus.
  2. Daniel, Betty C. & Shiamptanis, Christos, 2012. "Fiscal risk in a monetary union," European Economic Review, Elsevier, vol. 56(6), pages 1289-1309.
  3. Christos Shiamptanis, 2012. "Risk Assessment Under a Non-linear Fiscal Rule," Working Papers 038, Ryerson University, Department of Economics.
  4. Alexander W. Richter, 2013. "The Fiscal Limit and Non-Ricardian Consumers," Auburn Economics Working Paper Series auwp2013-19, Department of Economics, Auburn University.
  5. Eric M. Leeper & Todd B. Walker, 2011. "Fiscal Limits in Advanced Economies," Economic Papers, The Economic Society of Australia, vol. 30(1), pages 33-47, 03.

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