How do European monetary and fiscal authorities behave?
AbstractThe objective of this study is to investigate the behaviour of monetary and fiscal authorities in the Euro area. Our main contribution is joint modelling of behaviour of the two authorities. Our investigation highlights a number of facts. The systematic monetary policies adopted by the non-German authorities in the seventies were not capable of stabilizing inflation. Such results have been achieved in the eigthies and the nineties by anchoring more tightly domestic monetary policy to German monetary policy. All the main episodes of expansionary fiscal policy occurred in the course of the eigthies and the nineties in Europe cannot be explained by the sytematic behaviour of fiscal authorities. Stabilization of inflation has been achieved independently from the lack of fiscal discipline. There are important interactions between the two authorities but they depend exclusively on the responses of governemnts expenditures and receipts to interest rate payments on the public debt. Data on IT spending and investment unambiguously show that the European Union as a whole has eventually caught up with the United States in recent years. Throughout 1992-2001, two thirds of the EU population reached - or came much closer to - the same levels of IT diffusion as the United States. The remaining thirdof the EU citizens clusters together in a group of ´slow IT adopters´ (inclusive of Ireland, Italy, Spain, Portugal and Greece), whose distance from the US and the other EU countries in IT diffusion has evenwidened over time. In spite of this (partial) catching-up in IT diffusion, information technologies have so far delivered limited overall productivity gains in Europe. Thinking of European economies as new economies is thus not appropriate yet.
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Bibliographic InfoPaper provided by IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University in its series Working Papers with number 214.
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Other versions of this item:
- Favero, Carlo A, 2002. "How do European Monetary and Fiscal Authorities Behave?," CEPR Discussion Papers 3426, C.E.P.R. Discussion Papers.
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
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