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Fiscal policy independence in a European Monetary Union

  • Paul Masson
  • Jacques Melitz

Do plans for a monetary union in Europe call for limits on the freedom of the country members of the union to use fiscal policy? In order to provide a tentative answer, we simulate the IMF model MULTIMOD, given various shocks, in the case of a European Monetary Union consisting only of France and Germany. The results clearly indicate the possible value of allowing unfettered use of fiscal policy in both countries. The reasons lie partly in differences in the initial position of the two, partly in differences in their preferences. We also examine the change in the policy significance of the current account in the monetary union. Current account imbalances clearly cease to have the same significance in a monetary union; but they do not therefore become irrelevant. Copyright Kluwer Academic Publishers 1991

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File URL: http://hdl.handle.net/10.1007/BF01886896
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Article provided by Springer in its journal Open Economies Review.

Volume (Year): 2 (1991)
Issue (Month): 2 (June)
Pages: 113-136

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Handle: RePEc:kap:openec:v:2:y:1991:i:2:p:113-136
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  1. Cohen, Daniel & Wyplosz, Charles, 1989. "The European Monetary Union: An Agnostic Evaluation," CEPR Discussion Papers 306, C.E.P.R. Discussion Papers.
  2. Dooley, Michael P. & Isard, Peter, 1991. "A note on fiscal policy, investment location decisions, and exchange rates," Journal of International Money and Finance, Elsevier, vol. 10(1), pages 161-168, March.
  3. Canzoneri, Matthew B, 1985. "Monetary Policy Games and the Role of Private Information," American Economic Review, American Economic Association, vol. 75(5), pages 1056-70, December.
  4. Jacob A. Frenkel & Morris Goldstein & Paul R. Masson, 1989. "International dimensions of monetary policy: coordination versus autonomy," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 183-243.
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