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Fiscal policy coordination in the EMU: A problem with asymmetry and aggregation

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  • Matti Viren

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    Abstract

    This paper deals with fiscal policy coordination within the European Monetary Union. In the first place, it investigates the potential problems which are caused by cross-country differences in key fiscal parameters and the asymmetric nature of these parameters. In the second section, the pros and cons of policy coordination evaluated using some multi-country estimates as point of reference. The empirical results clearly show that policy coordination within the EMU context is very difficult because of these country differences and asymmetries. Even so, it is shown that policy coordination pays off at least in cases where the countries share the same shocks. Some practical problems of policy coordination and future prospects are also considered in the paper.

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    File URL: http://www.ace-economics.fi/kuvat/dp70.pdf
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    Bibliographic Info

    Paper provided by Aboa Centre for Economics in its series Discussion Papers with number 70.

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    Length: 35
    Date of creation: Dec 2011
    Date of revision:
    Handle: RePEc:tkk:dpaper:dp70

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    Keywords: Fiscal policy; policy coordination; government deficit; EMU;

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    1. Patrick J. Kehoe, 1986. "Coordination of fiscal policies in a world economy," Staff Report 98, Federal Reserve Bank of Minneapolis.
    2. Matti Viren, 2000. "Measuring effectiveness of fiscal policy in OECD countries," Applied Economics Letters, Taylor & Francis Journals, vol. 7(1), pages 29-34.
    3. Buiter,Willem H. & Marston,Richard C., 1986. "International Economic Policy Coordination," Cambridge Books, Cambridge University Press, number 9780521337809, October.
    4. Olivier Blanchard & Roberto Perotti, 1999. "An Empirical Characterization of the Dynamic Effects of Changes in Government Spending and Taxes on Output," NBER Working Papers 7269, National Bureau of Economic Research, Inc.
    5. Buti, Marco & Franco, Daniele & Ongena, Hedwig, 1998. "Fiscal Discipline and Flexibility in EMU: The Implementation of the Stability and Growth Pact," Oxford Review of Economic Policy, Oxford University Press, vol. 14(3), pages 81-97, Autumn.
    6. William H. Branson & Jacob A. Frenkel & Morris Goldstein, 1990. "International Policy Coordination and Exchange Rate Fluctuations," NBER Books, National Bureau of Economic Research, Inc, number bran90-1, October.
    7. Canzoneri, Matthew B & Minford, Patrick, 1986. "When International Policy Coordination Matters: An Empirical Analysis," CEPR Discussion Papers 119, C.E.P.R. Discussion Papers.
    8. Darrel Cohen & Glenn Follette, 2000. "The automatic fiscal stabilizers: quietly doing their thing," Economic Policy Review, Federal Reserve Bank of New York, issue Apr, pages 35-67.
    9. Gilles Oudiz & Jeffrey Sachs, 1984. "Macroeconomic Policy Coordination among the Industrial Economies," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 15(1), pages 1-76.
    10. Thomas Dalsgaard & Alain de Serres, 1999. "Estimating Prudent Budgetary Margins for 11 EU Countries: A Simulated SVAR Model Approach," OECD Economics Department Working Papers 216, OECD Publishing.
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