Edited by Gertrude Tumpel-Gugerell and Peter Mooslechner
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,...
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