Is Fiscal Policy Coordination in EMU Desirable?

Roel Beetsma, Xavier Debrun and Franc Klaassen

No 2001/178, IMF Working Papers from International Monetary Fund

Abstract: It is widely argued that Europe's unified monetary policy calls for international coordination at the fiscal level. We survey the issues involved in such coordination in the perspective of macroeconomic stabilization. A simple model identifies the circumstances under which coordination may be desirable. Coordination is beneficial when the cross-country correlation of the shocks is low. However, given the potentially adverse reaction by the ECB (as a result of free-riding or a conflict on the orientation of the policy mix), fiscal coordination is likely to prove counterproductive when demand or supply shocks are highly symmetric across countries and the governments are unable to acquire a strategic leadership position vis-à-vis the ECB.

Keywords: WP; monetary policy; fiscal authorities; interest rate; aggregate demand; EMU; fiscal coordination; shocks; demand management; loss function; solvency constraint; governments vis-à-vis; point of view; Representative government; inflation rate; Inflation; Supply shocks; Real interest rates; Price stabilization; Europe; E. fiscal policy coordination; Policy coordination; EMU desirable; IMF Institute (search for similar items in EconPapers)
Pages: 46
Date: 2001-11-01
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Citations: View citations in EconPapers (107)

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Related works:
Working Paper: Is Fiscal Policy Coordination in EMU Desirable? (2001)
Working Paper: Is Fiscal Policy Coordination in EMU Desirable? (2001)
Working Paper: Is Fiscal Policy Coordination in EMU Desirable? (2001)
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