Economic Policymaking within the Eurozone

Mark Baimbridge and Philip Whyman

Chapter 8 in Crisis in the Eurozone, 2015, pp 121-136 from Palgrave Macmillan

Abstract: Abstract As previously outlined, a country within the eurozone faces a considerably different macroeconomic policy framework from that previously experienced by EU member states. Monetary policy is now set by the independent ECB, whilst national governments possess fiscal and supply-side policies. Hence, from an individual country’s viewpoint, interest rates are now ‘fixed’ and will only move if the ECB decides that economic conditions are changing for the eurozone as a whole and not if an individual country, or group of countries, suffers an economic shock (McKinnon, 2003; von Hagen, 2003; Wyplosz, 2003). Thus, the eurozone participating countries now have two choices. Firstly, provided that it does not infringe the convergence criteria/SGP, a country can use fiscal policy to counteract whatever shock has occurred (Gali and Perotti, 2003). Secondly, that country can wait for its labour market to alter wages and then prices and, thus, its overall degree of international competitiveness.

Keywords: Interest Rate; Monetary Policy; Central Bank; Fiscal Policy; Real Interest Rate (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-1-137-32903-5_8

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DOI: 10.1057/9781137329035_8

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