Fiscal Policy in the European Monetary Union

Betty Daniel () and Christos Shiamptanis

No 2009-1, Working Papers from Central Bank of Cyprus

Abstract: An EMU country that adheres to the Maastricht and the Stability and Growth Pact limits is implicitly promising not to allow its fiscal stance to deteriorate to a position in which it places pressure on the European Central Bank to forgo its price level target to finance fiscal deficits. Violation of these limits has raised questions about potential fiscal encroachment on the monetary authority’s freedom to determine the price level. We show that for the monetary authority to have the freedom to control price, the primary surplus must respond strongly enough to lagged debt. Panel estimates are consistent with monetary control of the price level.

Keywords: European Monetary Union; monetary policy; fiscal policy; Fiscal Theory of the Price Level; panel cointegration; error correction (search for similar items in EconPapers)
JEL-codes: C32 C33 E42 E62 F33 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2009-07
New Economics Papers: this item is included in nep-cba, nep-eec and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Working Paper: Fiscal policy in the European Monetary Union (2008)
Working Paper: Fiscal Policy in the European Monetary Union (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:cyb:wpaper:2009-1

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