IDEAS home Printed from https://ideas.repec.org/p/ces/ceswps/_12139.html
   My bibliography  Save this paper

The EU’s New Expenditure Rule and Its Implications for Monetary Policy

Author

Listed:
  • Vasilki Dimakopoulou
  • George Economides
  • Apostolis Philippopoulos

Abstract

This paper investigates whether the new expenditure rule of the European Union (EU) can restore dynamic stability and determinacy with bounded public debt in an otherwise unstable economic environment. We build upon the standard New Keynesian dynamic general equilibrium model so as to compare our results to the well-known results of Leeper (1991, 2016) and, more generally, to the literature on the fiscal-monetary policy mix. We find that the EU's new fiscal rule, despite its intentions, works practically like active fiscal policy. Given this, it does not leave room for active monetary (interest rate) policy; instead, the central bank has to accommodate the active fiscal policy which means that the policy interest rate can react only weakly to inflation. This will undermine the ECB's key mandate.

Suggested Citation

  • Vasilki Dimakopoulou & George Economides & Apostolis Philippopoulos, 2025. "The EU’s New Expenditure Rule and Its Implications for Monetary Policy," CESifo Working Paper Series 12139, CESifo.
    • Handle: RePEc:ces:ceswps:_12139
    as

    Download full text from publisher

    File URL: https://www.ifo.de/DocDL/cesifo1_wp12139.pdf
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    ;
    ;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ces:ceswps:_12139. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Klaus Wohlrabe (email available below). General contact details of provider: https://edirc.repec.org/data/cesifde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.