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Monetary and Fiscal Policies in EMU: some relevant issues

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Author Info
Carlos Vieira () (Departamento de Economia University of Évora)
Isabel Vieira () (Departamento de Economia University of Évora)
Sofia Costa () (Departamento de Economia University of Évora)

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Abstract

The coexistence in EMU of one common monetary policy and several domestic fiscal policies raises a number of problems of both academic and political interest. First, there are reasons to assess a hypothetical need to also centralise fiscal policies in such circumstances, according to what prevails in federal states. Second, given that this hypothesis has not reached consensus in the EU, nor is it expected to do so in the near future, the issue of how to co-ordinate monetary and fiscal policies, in order to achieve the desired outcomes in both global and individual terms, arises. Third, the fact that policy spill-overs are enhanced in the EMU, the need to avoid free riding behaviour on the part of member states and the apparent non-reliance on financial markets to discipline sovereign debtors led to the option of restricting the autonomy of domestic fiscal policies by setting up constraints upon the relative levels of deficits and debts. Due to these restrictions, it is important to investigate the existence of alternative options in case of economic shocks that are specific to an economic area, or that do not equally affect all EMU members. Theory suggests that financial markets, when integrated, can provide relief by supplying the means to finance recovery. However, the lack of integration, uncovered by empirical analyses especially in peripheral EU areas, indicates that financial markets cannot be fully relied upon as mechanisms of adjustment. The current study analyses these topics of interest for monetary and fiscal policies in EMU.

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Publisher Info
Paper provided by Free University Berlin, Jean Monnet Centre of Excellence in its series Eastward Enlargement of the Euro-zone Working Papers with number wp17f.

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Length: 37 pages
Date of creation: 01 Mar 2003
Date of revision: 01 Mar 2003
Handle: RePEc:ezo:ezppap:wp17f

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Related research
Keywords: Regional Input; Monetary and Fiscal Policies; EMU;

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References listed on IDEAS
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  2. Jürgen von Hagen & Susanne Mundschenk, 2002. "Fiscal and Monetary Policy Coordination in EMU," Working Papers 70, Oesterreichische Nationalbank (Austrian Central Bank). [Downloadable!]
    Other versions:
  3. Alberto Alesina & Ignazio Angeloni & Federico Etro, 2001. "The Political Economy of International Unions," Harvard Institute of Economic Research Working Papers 1939, Harvard - Institute of Economic Research. [Downloadable!]
    Other versions:
  4. Pesaran, M. Hashem & Shin, Yongcheol & Smith, Richard J., 2000. "Structural analysis of vector error correction models with exogenous I(1) variables," Journal of Econometrics, Elsevier, vol. 97(2), pages 293-343, August. [Downloadable!] (restricted)
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  5. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
  6. Stanley Fischer, 1996. "Why are central banks pursuing long-run price stability?," Proceedings, Federal Reserve Bank of Kansas City, pages 7-34. [Downloadable!]
  7. George A. Akerlof & William R. Dickens & George L. Perry, 1996. "The Macroeconomics of Low Inflation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(1996-1), pages 1-76. [Downloadable!]
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  11. Marvin Goodfriend, 2000. "Overcoming the zero bound on interest rate policy," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, pages 1007-1057.
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  12. Summers, Lawrence, 1991. "How Should Long-Term Monetary Policy Be Determined? Panel Discussion," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 23(3), pages 625-31, August. [Downloadable!] (restricted)
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  14. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254. [Downloadable!] (restricted)
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