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January 30, 2010 | History

Fiscal policy in the European Monetary Union 1 edition

Fiscal policy in the European Monetary Union
Betty C. Daniel

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Fiscal policy in the European Monetary Union
Betty C. Daniel and Christos Shiamptanis.

Published 2008 by Federal Reserve Board in Washington, D.C .
Written in English.

About the Book

"A country entering the EMU surrenders its monetary policy, and its debt becomes denominated in terms of a currency over which it has no direct control. A country's promise to uphold the fiscal limits in the Maastricht Treaty and the Stability and Growth Pact is implicitly a promise not to allow its fiscal stance to deteriorate to a position in which it places pressure on the central bank to forgo its price level target to finance fiscal deficits. Violation of these limits has raised questions about potential fiscal encroachment on the monetary authority's freedom to determine the price level. We specify a simple model of fiscal policy in which the fiscal authority faces an upper bound on the size of its primary surplus. Policy is determined by a fiscal rule, specified as an error correction model, in which the primary surplus responds to debt and a target variable. We show that for the monetary authority to have the freedom to control price, the primary surplus must respond strongly enough to lagged debt. Using panel techniques that allow for unit roots and for heterogeneity and cross-sectional dependence across countries, we estimate the coefficients of the error correction model for the primary surplus in a panel of ten EMU countries over the period 1970-2006. The group mean estimate for the coefficient on lagged debt is consistent with the hypothesis that the monetary authority can control the price level in the EMU, independent of fiscal influence"--Federal Reserve Board web site.

Edition Notes

Title from PDF file as viewed on 6/22/2009.

Includes bibliographical references.

Also available in print.

System requirements: Adobe Acrobat Reader.

Mode of access: World Wide Web.

Series
International finance discussion papers -- no. 961, International finance discussion papers (Online) -- no. 961.

Classifications

Library of Congress
HG3879

The Physical Object

Format
Electronic resource

ID Numbers

Open Library
OL23557776M
LC Control Number
2009656131

History Created December 11, 2009 · 2 revisions Download catalog record: RDF / JSON

January 30, 2010 Edited by WorkBot add more information to works
December 11, 2009 Created by WorkBot add works page