Fiscal policy restrictions in a monetary system: the case of Spain

Ignacio Mauleón () and María Isabel Escobedo López
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María Isabel Escobedo López: Universidad Nacional de Educación a Distancia (UNED)

Working Papers. Serie AD from Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie)

Abstract: The idea that individual countries public debts and deficits might jeopardize a monetary union is widespread nowadays. This paper explores how a public deficit in any individual country, may endanger its stability as a member of a monetary system with narrow exchange rate bands. The portfolio balance approach, and the target zone models are the basic theoretical models considered. The models are applied to the case of Spain showing, on the whole, that this country must exert a tighter control over its public finances if it is to become a stable member of a monetary system. Non linearities, and short run dynamics, are taken into account in the empirical results, that also make use of standard cointegration techniques.

Keywords: Public debt; portfolio balance approach; target zones (search for similar items in EconPapers)
Pages: 32 pages
Date: 1994-12
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http://www.ivie.es/downloads/docs/wpasad/wpasad-1994-18.pdf Fisrt version / Primera version, 1994 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:ivi:wpasad:1994-18

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