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EMU and Politically-Induced Output Variability: Can the Stability and Growth Pack Help?

  • Robert Ackrill

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  • Dean Garratt
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    Rogoff, 1985, suggested that central bank independence would lead to lower inflation but greater output variability. Alesina and Gatti, 1995, demonstrated Rogoff’s work was partial by only considering economic sources of output variability. By including political factors, circumstances could be identified when making a central bank independent could reduce both inflation and output variability. In EMU, however, there is no choice about central bank independence. Starting with a review of the analysis presented by Alesina and Gatti, this paper suggests national fiscal policies could also be a source of politically-induced output variability. It reinterprets the analysis of Alesina and Gatti and identifies circumstances when the Stability and Growth Pact could help to reduce output variability in EMU.

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    File URL: http://www.le.ac.uk/economics/research/RePEc/lec/leecon/econ98-2.pdf
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    Paper provided by Department of Economics, University of Leicester in its series Discussion Papers in Economics with number 98/2.

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    Date of creation: May 1998
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    Handle: RePEc:lec:leecon:98/2
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