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Fiscal Leadership and Coordination in the EMU

  • Nicola Acocella
  • Giovanni Bartolomeo
  • Patrizio Tirelli

    ()

We analyze the role of fiscal-monetary policy interactions and fiscal coordination in EMU under the assumption of strategic wage setting in unionized labour markets. We find that production subsidies and real wage distortions are strategic complements. The literature on macroeconomic stabilisation policies and policy games usually neglects this point and reaches overoptimistic conclusions about the desirable effects of accommodating fiscal policies. Central bank preferences also affect the desirability of fiscal coordination in a monetary union. In fact, contrary to Beetsma and Bovenberg ( 1998 ), we find that fiscal coordination improves outcomes in the case of a conservative central banker, whereas it leads to worse outcomes with a populist one. Copyright Springer Science+Business Media, LLC 2007

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File URL: http://hdl.handle.net/10.1007/s11079-007-9038-4
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Article provided by Springer in its journal Open Economies Review.

Volume (Year): 18 (2007)
Issue (Month): 3 (July)
Pages: 281-289

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Handle: RePEc:kap:openec:v:18:y:2007:i:3:p:281-289
Contact details of provider: Web page: http://www.springerlink.com/link.asp?id=100323

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  1. Lippi, Francesco, 2002. "Revisiting the case for a populist central banker," European Economic Review, Elsevier, vol. 46(3), pages 601-612, March.
  2. Avinash Dixit & Luisa Lambertini, 2003. "Interactions of Commitment and Discretion in Monetary and Fiscal Policies," American Economic Review, American Economic Association, vol. 93(5), pages 1522-1542, December.
  3. Beetsma, R.M.W.J. & Bovenberg, A.L., 1995. "Monetary Union without Fiscal Coordination May Discipline Policymakers," DELTA Working Papers 95-22, DELTA (Ecole normale supérieure).
  4. repec:cup:cbooks:9780521464673 is not listed on IDEAS
  5. Acocella, Nicola & Di Bartolomeo, Giovanni & Tirelli, Patrizio, 2007. "Monetary conservatism and fiscal coordination in a monetary union," Economics Letters, Elsevier, vol. 94(1), pages 56-63, January.
  6. Guzzo, Vincenzo & Velasco, Andres, 1999. "The case for a populist Central Banker," European Economic Review, Elsevier, vol. 43(7), pages 1317-1344, June.
  7. repec:dgr:kubcen:1999100 is not listed on IDEAS
  8. repec:dgr:kubcen:1998116 is not listed on IDEAS
  9. Alesina, Alberto & Tabellini, Guido, 1987. "Rules and Discretion with Noncoordinated Monetary and Fiscal Policies," Economic Inquiry, Western Economic Association International, vol. 25(4), pages 619-30, October.
  10. David Soskice & Torben Iversen, 2000. "The Nonneutrality Of Monetary Policy With Large Price Or Wage Setters," The Quarterly Journal of Economics, MIT Press, vol. 115(1), pages 265-284, February.
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