Re-examining Monetary and Fiscal Policy for the 21st Century

Re-examining Monetary and Fiscal Policy for the 21st Century

Philip Arestis and Malcolm Sawyer

This book provides a much-needed re-examination of monetary and fiscal policies, their application in the real world and their potential for macroeconomic policy in the 21st century. It provides a detailed discussion and critique of the ‘new consensus' in macroeconomics along with the monetary and fiscal policies encapsulated within it.

Chapter 10: Macroeconomic Policies of the European Economic and Monetary Union

Philip Arestis and Malcolm Sawyer

Subjects: economics and finance, money and banking, post-keynesian economics

Extract

1 INTRODUCTION In this chapter we turn our attention to material of a more applied nature. What it is meant to imply by this is that the theoretical underpinnings put forward in the book are utilized either to analyse real world phenomena or to study further certain features of the real world. The macroeconomic policies of the European economic and monetary union (EMU) are the subject matter of this chapter. More concretely, this chapter seeks to decipher the type of economic analysis and macroeconomic policies of the EMU. It argues that the challenges to the EMU macroeconomic policies lie in their potential to achieve full employment and low inflation in the euro area. It is concluded that these policies as they currently operate have not performed satisfactorily since the inception of the EMU and are unlikely to operate any better in the future. The chapter presents some alternatives, which are based on a different theoretical framework (akin to that put forward in Chapter 6) and institutions. We begin with the theoretical underpinnings of the EMU model, and deal with the nature of the economic model surrounding the EMU and suggest that it is essentially of what has been termed in this book and elsewhere (see Chapter 2) the ‘new consensus’ in macroeconomics. The macroeconomic policies that emanate from this model are then deciphered. We suggest that the key challenge is whether in the EMU these policies are adequate to deal with the problems of unemployment and inflation, and...

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