Macroeconomic Policy Interactions in the EMU: A Case for Fiscal Policy Co-ordination
AbstractWe analyse the effects of fiscal policy co-ordination in a monetary union on inflation, public expenditure 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, monetary policy commitment problems are mitigated. As a result, the optimal degree of conservatism of the central bank declines. 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 School of Economics, University of Surrey in its series School of Economics Discussion Papers with number 0003.
Date of creation: Aug 2000
Date of revision:
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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2000-09-18 (All new papers)
- NEP-MON-2000-09-18 (Monetary Economics)
- NEP-PBE-2000-09-18 (Public Economics)
- NEP-POL-2000-09-18 (Positive Political Economics)
- NEP-PUB-2000-09-18 (Public Finance)
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