CENTRAL BANK REACTION TO PUBLIC DEFICIT AND SOUND PUBLIC FINANCE THE CASE OF THE EUROPEAN MONETARY UNION

Rosaria Rita Canale

Journal of Advanced Studies in Finance, 2010, vol. 1, issue 1, 4-17

Abstract: The paper aims to shed light on the relation between monetary and fiscal policy in EMU focusing on the interest rates and deficit dynamics We present a theoretical model in which monetary and fiscal policy independently interact through their own instrument namely the rate of interest for the central bank and deficit spending for governments We demonstrate that the possibility of the two policy authorities producing not conflicting results depends on the idea each has of the workings of the economic system and on the influence each variable has on inflation and equilibrium income Furthermore the inflationary opinion of the ECB about deficit spending leads to the result that public finance becomes surely unsound unless governments stop using expansionary instruments We provocatively conclude that the limits set by the Maastricht Treaty are a necessary solution to avoid unsound public finance

Date: 2010
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:
Working Paper: Central bank reaction to public deficit and sound public finance: the case of the European Monetary Union (2008)
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:srs:jasf00:v:1:y:2010:i:1:p:4-17

Access Statistics for this article

Journal of Advanced Studies in Finance is currently edited by Laura GAVRILĂ (formerly Ştefănescu)

More articles in Journal of Advanced Studies in Finance from ASERS Publishing
Bibliographic data for series maintained by Claudiu Popirlan ( this e-mail address is bad, please contact ).