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Changing Partners: The Importance of Coordinating Fiscal and Monetary Policies within a Monetary Union

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  • Hughes Hallett, A J
  • Ma, Yue

Abstract

This paper examines and compares the costs of noncooperative (i.e., national) fiscal policies in a monetary union, with the costs of assigning monetary policy to price stability and fiscal policy to output growth as recommended in the Maastricht Treaty. Compared to a fully coordinated monetary union, the authors find that national fiscal policies cause problems in the face of asymmetries between countries but few problems for symmetric (converged) economies. The fiscal-monetary assignments cause problems in either case but paradoxically greater problems appear in the symmetric rather than asymmetric case. Copyright 1996 by Blackwell Publishers Ltd and The Victoria University of Manchester

Suggested Citation

  • Hughes Hallett, A J & Ma, Yue, 1996. "Changing Partners: The Importance of Coordinating Fiscal and Monetary Policies within a Monetary Union," The Manchester School of Economic & Social Studies, University of Manchester, vol. 64(2), pages 115-134, June.
  • Handle: RePEc:bla:manch2:v:64:y:1996:i:2:p:115-34
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    Cited by:

    1. Bas van Aarle & Giovanni Di Bartolomeo & Jacob Engwerda & Joseph Plasmans, 2002. "Monetary and Fiscal Policy Design in the EMU: An Overview," Open Economies Review, Springer, vol. 13(4), pages 321-340, October.
    2. Bas van Aarle & Jacob Engwerda & Joseph Plasmans, 2002. "Monetary and Fiscal Policy Interaction in the EMU: A Dynamic Game Approach," Annals of Operations Research, Springer, vol. 109(1), pages 229-264, January.
    3. Jérôme Creel, 2001. "Faut-il contraindre la politique budgétaire en Union monétaire ?. Les enseignements d'une maquette simulée," Revue de l'OFCE, Presses de Sciences-Po, vol. 77(2), pages 199-249.
    4. Fabrice Capoen & Jérôme Creel, 2007. "Efficiency of stability-oriented institutions: the European case," Sciences Po publications N°2007-06, Sciences Po.
    5. Foresti, Pasquale, 2017. "Monetary and fiscal policies in interaction in monetary unions," LSE Research Online Documents on Economics 69623, London School of Economics and Political Science, LSE Library.
    6. Bas Van Aarle & Jacob Engwerda & Joseph Plasmans & Arie Weeren, 2001. "Macroeconomic Policy Interaction under EMU: A Dynamic Game Approach," Open Economies Review, Springer, vol. 12(1), pages 29-60, January.
    7. repec:spo:wpecon:info:hdl:2441/2943 is not listed on IDEAS
    8. Engwerda, J. & Boldea, O. & Michalak, T. & Plasmans, J. & Salmah,, 2012. "A simulation study of an ASEAN monetary union," Economic Modelling, Elsevier, vol. 29(5), pages 1870-1890.
    9. Tomasz Michalak & Jacob Engwerda & Joseph Plasmans, 2009. "Strategic Interactions between Fiscal and Monetary Authorities in a Multi-Country New-Keynesian Model of a Monetary Union," CESifo Working Paper Series 2534, CESifo Group Munich.
    10. Stefan Collignon, 1999. "Unemployment, Wage Developments and the Economic Policy Mix in Europe," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 26(3), pages 259-269, September.
    11. Creel, Jerome & Capoen, Fabrice & Cussy, Pascal & Lenoble-Liaud, Helene, 2003. "How to manage financial shocks: Intra-European vs. international monetary coordination," Journal of Macroeconomics, Elsevier, vol. 25(4), pages 431-455, December.

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