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Faut-il contraindre la politique budgétaire en Union monétaire ?. Les enseignements d'une maquette simulée

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  • Jérôme Creel

Abstract

We study the consequences of the Stability and Growth Pact on the implementation of fiscal and monetary policies in Europe. Within a two-country model in a monetary union; two fiscal frameworks are alternatively introduced: governments minimise a loss function and stabilise public debt in the long run; or governments adopt balanced-budget rules. The model is keynesian in the short run but includes wealth effects; hence, it can reproduce the main results of the fiscal theory of the price level in the long run. Outcomes are that governments benefit from tying their hands in the long run if their policies are not coordinated with monetary policy. Even if they are, the common central bank will always prefer that fiscal policies follow balanced-budget rules. Conflicts between fiscal and monetary policies after a shock will likely arise.

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  • 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.
    • Handle: RePEc:cai:reofsp:reof_077_0199
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    1. Cornel Oros, 2008. "Macroeconomic stabilization in a heterogeneous monetary union: some insights into the effects of fiscal policy coordination," Economics Bulletin, AccessEcon, vol. 5(34), pages 1-12.

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