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Economic spillover and policy coordination in the Euro area

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Author Info

  • Klaus Weyerstrass
  • Johannes Jaenicke
  • Reinhard Neck
  • Gottfried Haber
  • Bas van Aarle
  • Koen Schoors
  • Niko Gobbin
  • Peter Claeys

Abstract

There is a broad consensus among economists that the increased interdependence that comes from sharing a common currency and a single monetary policy justifies some degree of economic policy coordination between euro area Member States. However, empirical studies have, thus far, offered inconclusive evidence regarding the comparative importance of different types of economic spillover. Accordingly, estimates of the welfare gains from economic policy coordination in the euro area have varied considerably. This study presents original research on the nature of economic interdependence under European Economic and Monetary Union. Its main contribution is to provide plausible estimates of the sign and size of economic spillover in the euro area and the welfare gains from economic policy coordination. These results are relevant for the European Commission's ongoing work on strengthening economic governance in the context of the Stability and Growth Pact and the Lisbon Strategy.

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Bibliographic Info

Paper provided by Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission in its series European Economy - Economic Papers with number 246.

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Length: 289 pages
Date of creation: Mar 2006
Date of revision:
Handle: RePEc:euf:ecopap:0246

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Keywords: budgetary spillover; economic interdependence; Stability and Growth Pact; Lisbon Strategy; Haber; van Aarle; Schoors; Gobbin; Claeys;

References

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  1. Ramey, Valerie A. & Shapiro, Matthew D., 1998. "Costly capital reallocation and the effects of government spending," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 48(1), pages 145-194, June.
  2. Stephen Nickell, 2003. "Labour Market Institutions and Unemployment in OECD Countries," CESifo DICE Report, Ifo Institute for Economic Research at the University of Munich, vol. 1(2), pages 13-26, October.
  3. Robin L. Lumsdaine & Eswar S. Prasad, 2003. "Identifying the Common Component of International Economic Fluctuations: A New Approach," Economic Journal, Royal Economic Society, vol. 113(484), pages 101-127, January.
  4. Rogoff, Kenneth, 1985. "Can international monetary policy cooperation be counterproductive?," Journal of International Economics, Elsevier, vol. 18(3-4), pages 199-217, May.
  5. Luca Nunziata, 2005. "Institutions and Wage Determination: a Multi-country Approach," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 67(4), pages 435-466, 08.
  6. Adrian Orr & Malcolm Edey & Michael Kennedy, 1995. "The Determinants of Real Long-Term Interest Rates: 17 Country Pooled-Time-Series Evidence," OECD Economics Department Working Papers 155, OECD Publishing.
  7. Roberto Perotti, 1999. "Fiscal Policy In Good Times And Bad," The Quarterly Journal of Economics, MIT Press, vol. 114(4), pages 1399-1436, November.
  8. Roeger, Werner, 1995. "Can Imperfect Competition Explain the Difference between Primal and Dual Productivity Measures? Estimates for U.S. Manufacturing," Journal of Political Economy, University of Chicago Press, vol. 103(2), pages 316-30, April.
  9. Przybyla, Marcin & Roma, Moreno, 2005. "Does product market competition reduce inflation? Evidence from EU countries and sectors," Working Paper Series 0453, European Central Bank.
  10. Vincent Reinhart & Brian Sack, 2000. "The Economic Consequences of Disappearing Government Debt," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 31(2), pages 163-220.
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Citations

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Cited by:
  1. Klaus Weyerstrass & Reinhard Neck, 2008. "Macroeconomic Consequences of the Adoption of the Euro: The Case of Slovenia," International Advances in Economic Research, Springer, vol. 14(1), pages 1-10, February.
  2. Tomasz Michalak & Jacob Engwerda & Joseph Plasmans, 2009. "Strategic Interactions between Fiscal and Monetary Authorities in a Multi-Country New-Keynesian Model of a Monetary Union," CESifo Working Paper Series 2534, CESifo Group Munich.
  3. Antonio Afonso, 2010. "Expansionary fiscal consolidations in Europe: new evidence," Applied Economics Letters, Taylor & Francis Journals, vol. 17(2), pages 105-109.
  4. Andrés Leal Marcos & Julio López Laborda, 2009. "Efectos externos del endeudamiento sobre la calificación crediticia de las Comunidades Autónomas," Hacienda Pública Española, IEF, vol. 189(2), pages 81-106, June.
  5. António Afonso, 2007. "Expansionary fiscal consolidations in Europe: part of conventional wisdom?," Money Macro and Finance (MMF) Research Group Conference 2006 50, Money Macro and Finance Research Group.
  6. Bode, Oliver & Gerke, Rafael & Schellhorn, Hannes, 2006. "Die Wirkung fiskalischer Schocks auf das Bruttoinlandsprodukt," Working Papers 01/2006, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung.
  7. Konrad Szelag, 2007. "Expected and actual impact of EMU on growth, public finances and structural reforms in the euro area," National Bank of Poland Working Papers 40, National Bank of Poland, Economic Institute.
  8. Michele Giuranno, 2009. "Pooling Sovereignty and Subsidiarity Principle," Discussion Papers 09/01, Department of Economics, University of York.
  9. Giuranno, Michele G., 2010. "Pooling sovereignty under the subsidiary principle," European Journal of Political Economy, Elsevier, vol. 26(1), pages 125-136, March.

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