What is Wrong with the Euro Area Monetary Model?

Philip Arestis and Malcolm Sawyer ()

Chapter 15 in The Monetary Theory of Production, 2005, pp 231-242 from Palgrave Macmillan

Abstract: Abstract The creation of the euro has also created a euro area of countries with a single currency and a single monetary policy, but with no other euro area level macroeconomic policies. The fiscal policies of the national governments are supposedly constrained by the Stability and Growth Pact (SGP), which places an upper limit of 3 per cent of GDP on government deficits and a balance or small surplus on the government budget over the course of the business cycle. In this chapter, we argue that the monetary policy of the euro area is firmly based on what has been termed the ‘new consensus’ in macroeconomics (NCM). This new consensus stands in contrast with the monetary theory of production (and Graziani’s many contributions, including Graziani, 1994, 2003), where ‘understanding of the workings of an economic system can only be acquired if the economy is analysed from the outset as a monetary economy’ (Graziani, 1989, p. 1). Three of the key features of the NCM-based euro-area monetary model involve the classical dichotomy, the neutrality of money and the relevance of Say’s Law: and clearly each of those features is rejected by the monetary theory of production.

Keywords: Interest Rate; Monetary Policy; Central Bank; Fiscal Policy; Euro Area (search for similar items in EconPapers)
Date: 2005
References: Add references at CitEc
Citations: View citations in EconPapers (1)

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-0-230-52307-4_16

Ordering information: This item can be ordered from
http://www.palgrave.com/9780230523074

DOI: 10.1057/9780230523074_16

Access Statistics for this chapter

More chapters in Palgrave Macmillan Books from Palgrave Macmillan
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().