A Case for Fiscal Policy Co-ordination in Europe
AbstractIn this paper we analyse the impact of fiscal policy co-ordination in a monetary union on the size of the spending bias, inflation and the optimal degree of conservatism of the central bank. Our main result is that, when the fiscal authorities internalise the spillover effects originating from their loose fiscal stances, the size of the inflation bias decreases. As a result, the optimal degree of conservatism declines as well. Moreover, we show that the Stability Pact can be seen as an optimally designed linear penalty in the utility function of the fiscal authorities. This is able to achieve the same desired result as fiscal policy co-ordination but without an explicit commitment to it.
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Bibliographic InfoPaper provided by University of Milano-Bicocca, Department of Economics in its series Working Papers with number 23.
Length: 22 pages
Date of creation: Jun 1999
Date of revision: Jun 1999
EMU; Fiscal and Monetary Policy Co-ordination; Central Bank Independence; Stability and Growth Pact;
Find related papers by JEL classification:
- E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
- F15 - International Economics - - Trade - - - Economic Integration
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- Arby, Muhammad Farooq & Hanif, Muhammad Nadeem, 2010. "Monetary and fiscal policies coordination - Pakistan's experience," MPRA Paper 24160, University Library of Munich, Germany.
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