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Monetary-fiscal policy interactions in the euro area

Author

Listed:
  • Debrun, Xavier
  • Masuch, Klaus
  • Ferrero, Guiseppe
  • Vansteenkiste, Isabel
  • Ferdinandusse, Marien
  • von Thadden, Leopold
  • Hauptmeier, Sebastian
  • Alloza, Mario
  • Derouen, Chloé
  • Bańkowski, Krzysztof
  • Domingues Semeano, João
  • Barthélemy, Jean
  • Eisenschmidt, Jens
  • Bletzinger, Tilman
  • Faria, Thomas
  • Bonam, Dennis
  • Freier, Maximilian
  • Bouabdallah, Othman
  • Galati, Gabriele
  • Burriel, Pablo
  • Garcia, José
  • Campos, Maria
  • Gardó, Sándor
  • da Costa, José Cardoso
  • Gerke, Rafael
  • Checherita-Westphal, Cristina
  • Hammermann, Felix
  • Chmelar, Bernadette
  • Haroutunian, Stephan
  • Cimadomo, Jacopo
  • Hartung, Benjamin
  • Christoffel, Kai
  • Jacquinot, Pascal
  • Kamps, Christophe
  • Poelhekke, Steven
  • Kataryniuk, Ivan
  • Pool, Sebastiaan
  • Körding, Julia
  • Prammer, Doris
  • Kostka, Thomas
  • Romanelli, Marzia
  • Maćkowiak, Bartosz
  • Röttger, Joost
  • Mazelis, Falk
  • Sauer, Stephan
  • Marrazzo, Marco
  • Schmidt, Katja
  • Montes-Galdón, Carlos
  • Schmidt, Sebastian
  • Muggenthaler, Philip
  • Schupp, Fabian
  • Nerlich, Carolin
  • Setzer, Ralph
  • Nuño, Galo
  • Slawinska, Kamila
  • Ozden, Talga
  • Trzcinska, Agnieszka
  • Paulus, Alari
  • Valenta, Vilém
  • Penciu, Alexandru
  • Vladu, Andreea
  • Piloiu, Anamaria
  • Wolswijk, Guido
  • Pisani, Massimiliano

Abstract

The last review of the ECB’s monetary policy strategy in 2003 followed a period of predominantly upside risks to price stability. Experience following the 2008 financial crisis has focused renewed attention on the question of how monetary and fiscal policy should best interact, in particular in an environment of structurally low interest rates and persistent downside risks to price stability. This debate has been further intensified by the economic impact of the coronavirus (COVID-19) pandemic. In the euro area, the unique architecture of a monetary union consisting of sovereign Member States, with cross-country heterogeneities and weaknesses in its overall construction, poses important challenges. Against this background, this report revisits monetary-fiscal policy interactions in the euro area from a monetary policy perspective and with a focus on the ramifications for price stability and maintaining central bank independence and credibility. The report consists of three parts. The first chapter presents a conceptual framework for thinking about monetary-fiscal policy interactions, thereby setting the stage for a discussion of specifically euro area aspects and challenges in subsequent parts of the report. In particular, it reviews the main ingredients of the pre-global financial crisis consensus on monetary-fiscal policy interactions and addresses significant new insights and refinements which have gained prominence since 2003. In doing so, the chapter distinguishes between general conceptual aspects – i.e. those aspects that pertain to an environment characterised by a single central bank and a single fiscal authority and those aspects that pertain to an environment characterised by a single central bank and many fiscal authorities (a multi-country monetary union). ... JEL Classification: E52, E58, E62, E63, F45

Suggested Citation

  • Debrun, Xavier & Masuch, Klaus & Ferrero, Guiseppe & Vansteenkiste, Isabel & Ferdinandusse, Marien & von Thadden, Leopold & Hauptmeier, Sebastian & Alloza, Mario & Derouen, Chloé & Bańkowski, Krzyszto, 2021. "Monetary-fiscal policy interactions in the euro area," Occasional Paper Series 273, European Central Bank.
  • Handle: RePEc:ecb:ecbops:2021273
    Note: 369508
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    More about this item

    Keywords

    Fiscal Policy; Monetary Policy; Monetary Union;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • 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
    • F45 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Macroeconomic Issues of Monetary Unions

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