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The policy-mix in the Euro Area: The Role of Financial Stability

Author

Listed:
  • Claudiu T. Albulescu

    () (Management Department,‘Politehnica'''' University of Timisoara)

  • Cornel Oros

    () (IRIAF-CRIEF, University of Poitiers and LEO, University of Orléans)

Abstract

This paper analyses the impact of monetary and fiscal policies' interaction on the financial stability of the eurozone. Based on the construction of a financial stability index for the entire euro area, we assess the impact in terms of the stability of different configurations of policy-mix using a static Keynesian model in a closed monetary union. Mainly following the nature of fiscal spillovers, we show that fiscal coordination may be useful to improve the quality of the European Monetary Union financial stabilisation. The explicit consideration by the European Central Bank of the aggregate euro area financial stability as one of its macroeconomic objectives makes the non-cooperative game efficient. This configuration allows for a better macroeconomic and financial stabilisation at the aggregate level, which also has a positive effect at an individual level.

Suggested Citation

  • Claudiu T. Albulescu & Cornel Oros, 2014. "The policy-mix in the Euro Area: The Role of Financial Stability," Economics Bulletin, AccessEcon, vol. 34(2), pages 705-717.
  • Handle: RePEc:ebl:ecbull:eb-13-00690
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    References listed on IDEAS

    as
    1. Jürgen von Hagen & Susanne Mundschenk, 2003. "Fiscal and monetary policy coordination in EMU," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 8(4), pages 279-295.
    2. Brousseau, Vincent & Detken, Carsten, 2001. "Monetary policy and fears of financial instability," Working Paper Series 0089, European Central Bank.
    3. Patrick Villieu, 2003. "Pacte de stabilité, crédibilité du policy mix et coordination des politiques budgétaires en union monétaire," Revue économique, Presses de Sciences-Po, vol. 54(1), pages 25-46.
    4. Beetsma, Roel & Debrun, Xavier & Klaassen, Franc, 2001. "Is Fiscal Policy Coordination in EMU Desirable?," CEPR Discussion Papers 3035, C.E.P.R. Discussion Papers.
    5. Beetsma, Roel M. W. J. & Bovenberg, A. Lans, 1999. "Does monetary unification lead to excessive debt accumulation?," Journal of Public Economics, Elsevier, vol. 74(3), pages 299-325, December.
    6. Oros, Cornel, 2012. "What could happen in a Monetary Union? The Perspective of Informational Asymmetry," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 27, pages 633-653.
    7. Ferré, Montserrat, 2008. "Fiscal policy coordination in the EMU," Journal of Policy Modeling, Elsevier, vol. 30(2), pages 221-235.
    8. Daniel Laskar, 2003. "Policy-mix : le besoin de coordination des politiques budgétaires entre pays est-il accru en union monétaire ?," Recherches économiques de Louvain, De Boeck Université, vol. 69(3), pages 267-292.
    9. Dixit, Avinash & Lambertini, Luisa, 2001. "Monetary-fiscal policy interactions and commitment versus discretion in a monetary union," European Economic Review, Elsevier, vol. 45(4-6), pages 977-987, May.
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    11. Claudiu Tiberiu ALBULESCU, 2012. "Financial stability, monetary policy and budgetary coordination in EMU," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(8(573)), pages 85-96, August.
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    More about this item

    Keywords

    economic policy; financial stability; fiscal coordination; euro area;

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook

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