How Will Transatlantic Policy Interactions Change with the Advent of EMU?
Barry Eichengreen () and
Fabio Ghironi ()
No 1643, CEPR Discussion Papers from C.E.P.R. Discussion Papers
This paper analyses US–European policy interactions under different assumptions about the policy-making regime and the nature of the fiscal environment, contrasting the standard Keynesian case with an anti-Keynesian case in which government spending cuts are expansionary. When fiscal policy is anti-Keynesian, EMU may enhance monetary and fiscal discipline in Europe and stabilize employment in the face of supply shocks, in striking contrast to popular fears. The European Central Bank (ECB) and central banks outside Europe will have little incentive to coordinate their response to such shocks. Governments (the fiscal authorities) will wish central banks to coordinate, but the latter will not share their interest. We show that fiscal coordination can be counterproductive in this setting. Governments and central banks on both sides of the Atlantic are worse off when European governments cooperate. The results for the Keynesian case are different: EMU may reduce monetary discipline, the ECB and central banks outside Europe will wish to coordinate their response to supply shocks, and the ECB will want European governments to coordinate their policies.
Keywords: European Monetary Unification; Exchange-rate Regimes; Fiscal Policy; International Cooperation (search for similar items in EconPapers)
JEL-codes: E5 F3 H3 (search for similar items in EconPapers)
References: Add references at CitEc
Citations View citations in EconPapers (7) Track citations by RSS feed
Downloads: (external link)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at firstname.lastname@example.org
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:1643
Ordering information: This working paper can be ordered from
http://www.cepr.org/ ... ers/dp.php?dpno=1643
Access Statistics for this paper
More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ..
Bibliographic data for series maintained by (). This e-mail address is bad, please contact .