Chapter 24: An adequate macroeconomic policy mix in EMU?
Torben M. Andersen 1. INTRODUCTION A key question for the performance of Economic and Monetary Union (EMU) is whether the chosen set-up provides suﬃcient leverage to pursue adequate macroeconomic stabilization policies. This issue is particularly important given the macroeconomic assignment – the Maastricht assignment – established for EMU. This has two important parts. First, monetary policy has been delegated to the European Central Bank (ECB), while ﬁscal policy remains a national issue and thus decentralized. Second, the ECB has been given the express overriding mandate to maintain price stability. This is here interpreted in the sense that the main objective of ECB is to target inﬂation (cf. also ECB 1999). Would the mix of a centralized monetary policy and decentralized ﬁscal policies leave a problem of coordination of macroeconomic policies, and does the assignment of objectives imply that there will be a systematic stabilization deﬁcit? Substantial coordination problems may arise if ﬁscal policy decisions can be taken after monetary policy decisions, see, for example Dixit (2000), Dixit and Lambertini (2000a, b), Beetsma and Bovenberg (1998, 1999), Beetsma et al. (2001) and Leitemo (2000). In this case ﬁscal policy decisions may unravel monetary commitments, and ﬁscal authorities gain a strategic advantage vis-à-vis monetary authorities. Two arguments can be advanced why these problems would not arise in EMU. First, monetary policy decisions can be taken and implemented more quickly than ﬁscal policy decisions, which implies that monetary policy actually responds to ﬁscal policy rather than the other way round. Second,...
You are not authenticated to view the full text of this chapter or article.
Elgaronline requires a subscription or purchase to access the full text of books or journals. Please login through your library system or with your personal username and password on the homepage.
Non-subscribers can freely search the site, view abstracts/ extracts and download selected front matter and introductory chapters for personal use.
Your library may not have purchased all subject areas. If you are authenticated and think you should have access to this title, please contact your librarian.