The impact of the heterogenous fiscal policy stance of euro-area member states on ECB monetary policy

Linas Jurkšas

Economic Systems, 2024, vol. 48, issue 4

Abstract: This article assesses the influence of the fiscal stance of different euro-area members on the monetary policy actions of the European Central Bank. This issue has increased in relevance due to the widening disparities in the levels of debt across euro-area member states. We utilise a thick modelling approach that includes various GMM model specifications for the five largest euro area economies using quarterly projections data from 2002 to 2022. The findings indicate that the fiscal deficits of different euro area countries did not consistently exert a substantial impact on monetary policymaking. This conclusion holds even after the COVID-19 shock, with projected inflation remaining the most consistently significant indicator.

Keywords: Euro area; Monetary policy; Taylor-rule; Fiscal policy; Heterogeneities (search for similar items in EconPapers)
JEL-codes: E42 E52 E61 E63 F45 H68 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecosys:v:48:y:2024:i:4:s0939362524000384

DOI: 10.1016/j.ecosys.2024.101216

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