By using a multi-country simulation model this paper analyses the qualitative effects both of contractionary fiscal policies and of joining a monetary union. It is shown that - under certain macroeconomic conditions - both policy changes should happen at the same time. Given that these conditions exist in prospective future member countries of the European Monetary Union (EMU) it is argued that fiscal consolidations (if required) should not have to be completed prior to joining the EMU. The case of Italy becoming a member of the EMU is used to illustrate this argument.
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Paper provided by University of Essex, Department of Economics in its series Economics Discussion Papers with number
544.
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