Can Countries under A Common Currency Conduct Their Own Fiscal Policies?
AbstractThe debate about balance of payment problems is generally linked with adjustments in the fiscal sector, especially since the views of Bretton Woods institutions became predominant. For the majority of theoretical models that currently inform policy, it is becoming common thought that in a world of free trade and free movement of capital, a floating rate of exchange may clear the market for financial assets. In these models, the persistence of balance of payment problems can be attributed to rigidities either in the fiscal sector (that is, the inability of the public sector to run a balanced budget), or the labor market (that is, trade union pressures and welfare protective measures leading to uncompetitive salaries). This approach, which makes the fiscal stance the culprit of macroeconomic imbalances in countries with floating exchange rates, is, however, also applied to countries that have adopted other, more rigid forms of exchange rate policy, such as currency boards, dollarization, and common currency agreements. It seems to be overlooked that systems of common currency pose problems of an entirely different kind because two major mechanisms of macroeconomic adjustment ¾ exchange rate flexibility and money issuing ¾ are obviously removed. Thus, theoretical and policy-oriented propositions need to take into account this new set of restrictions.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by EconWPA in its series Macroeconomics with number 0108008.
Length: 13 pages
Date of creation: 04 Sep 2001
Date of revision:
Note: Type of Document - Adobe Acrobat PDF; prepared on IBM PC; to print on PostScript; pages: 13; figures: included
Contact details of provider:
Web page: http://184.108.40.206
Find related papers by JEL classification:
- E - Macroeconomics and Monetary Economics
This paper has been announced in the following NEP Reports:
- NEP-ALL-2001-09-10 (All new papers)
- NEP-IFN-2001-09-10 (International Finance)
- NEP-PKE-2001-09-10 (Post Keynesian Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Philip Arestis & Malcolm Sawyer, 2001.
"Will The Euro Bring Economic Crisis to Europe?,"
Economics Working Paper Archive
wp_322, Levy Economics Institute.
- Chinn, Menzie David & Dooley, Michael P., 1999. "International monetary arrangements in the Asia-Pacific before and after," Journal of Asian Economics, Elsevier, vol. 10(3), pages 361-384.
- Dimitri B. Papadimitriou & L. Randall Wray, . "Fiscal Policy For the Coming Recession: Large Tax Cuts are Needed to Prevent a Hard Landing," Economics Policy Note Archive 01-2, Levy Economics Institute.
- Kathryn Dominguez & Jeffrey A. Frankel, 1990. "Does Foreign Exchange Intervention Work?," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 16.
- Marc Lavoie, 2001.
"Endogenous Money in a Coherent Stock-Flow Framework,"
- Marc Lavoie, 2001. "Endogenous Money in a Coherent Stock-Flow Framework," Economics Working Paper Archive wp_325, Levy Economics Institute.
- Philip Arestis & Iris Biefang-Frisancho Mariscal & Andrew Brown & Malcolm Sawyer, 2001.
"The Causes of Euro Instability,"
Economics Working Paper Archive
wp_324, Levy Economics Institute.
- Tobin, James, 1969. "A General Equilibrium Approach to Monetary Theory," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 1(1), pages 15-29, February.
- Hinkle, Lawrence E. & Monteil, Peter J. (ed.), 1999. "Exchange Rate Misalignment: Concepts and Measurement for Developing Countries," OUP Catalogue, Oxford University Press, number 9780195211269, September.
- David Backus & William C. Brainard & Gary Smith & James Tobin, 1980.
"A Model of U.S. Financial and Nonfinancial Economic Behavior,"
Cowles Foundation Discussion Papers
548, Cowles Foundation for Research in Economics, Yale University.
- Backus, David, et al, 1980. "A Model of U.S. Financial and Nonfinancial Economic Behavior," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 12(2), pages 259-93, Special I.
- Marc Lavoie & Wynne Godley, 2000.
"Kaleckian Models of Growth in a Stock-Flow Monetary Framework: A Neo-Kaldorian Model,"
Economics Working Paper Archive
wp_302, Levy Economics Institute.
- Marc Lavoie & Wynne Godley, 2000. "Kaleckian Models of Growth in a Stock-Flow Monetary Framework: A Neo-Kaldorian Model," Macroeconomics 0004049, EconWPA.
- Rudiger Dornbusch, 1987. "Open Economy Macroeconomics: New Directions," NBER Working Papers 2372, National Bureau of Economic Research, Inc.
- William C. Brainard & James Tobin, 1968. "Pitfalls in Financial Model-Building," Cowles Foundation Discussion Papers 244, Cowles Foundation for Research in Economics, Yale University.
- Roe, Alan R, 1973. "The Case for Flow of Funds and National Balance Sheet Accounts," Economic Journal, Royal Economic Society, vol. 83(330), pages 399-420, June.
- Christodoulakis, Nicos & Godley, Wynne, 1987. "Macroeconomic consequences of alternative trade policy options," Journal of Policy Modeling, Elsevier, vol. 9(3), pages 405-436.
- Philip Arestis & Kevin McCauley & Malcolm Sawyer, . "The Future of the Euro: Is There an Alternative to the Stability and Growth Pact?," Economics Public Policy Brief Archive ppb_63, Levy Economics Institute.
- Jacques J. Polak, 1995. "Fifty Years of Exchange Rate Research and Policy at the International Monetary Fund," IMF Staff Papers, Palgrave Macmillan, vol. 42(4), pages 734-761, December.
- Pyatt, Graham & Round, Jeffrey I, 1977. "Social Accounting Matrices for Development Planning," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 23(4), pages 339-64, December.
- Patterson, K D & Stephenson, M J, 1988. "Stock-Flow Consistent Accounting: A Macroeconomic Perspective," Economic Journal, Royal Economic Society, vol. 98(392), pages 787-800, September.
- Coutts, Ken & Godley, Wynne, 1990. "Prosperity and Foreign Trade in the 1990s: Britain's Strategic Problem," Oxford Review of Economic Policy, Oxford University Press, vol. 6(3), pages 82-92, Autumn.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA).
If references are entirely missing, you can add them using this form.