Fiscal and Monetary Interaction: The Role of Asymmetries of the Stability and Growth Pact in EMU

Sylvester Eijffinger () and Matteo Governatori

No 4647, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: The Paper builds a simplified model describing the economy of a currency union with decentralized national fiscal policy, where the main features characterizing the policy-making are similar to those in EMU. National governments choose the size of deficit taking into account the two main rules of the Stability and Growth Pact on public finance. Unlike previous literature the asymmetric working of those rules is explicitly modeled in order to identify its impact on the Nash equilibrium of deficits arising from a game of strategic interaction between fiscal authorities in the union.

Keywords: asymmetric fiscal rules; decentralized fiscal policy; EMU; stability and growth pact (search for similar items in EconPapers)
JEL-codes: E61 H30 H60 H70 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-eec, nep-mac and nep-pbe
Date: 2004-09

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Working Paper: Fiscal and Monetary Interaction: The Role of Asymmetries of the Stability and Growth Pact in EMU (2004)
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