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Designing Fiscal Institutions in a Monetary Union

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  • Brigitte Godbillon
  • Moïse Sidiropoulos

Abstract

This article explores the policy and wealth consequences of alternative institutional arrangements through which fiscal policy interacts with monetary policy in a monetary union such as the EMU. The central issue of the article is the design of the appropriate monetary and fiscal institutions through a comparison of alternative arrangements to distribute power over monetary and fiscal authorities between the central authority of the union and the individual members of the union and evaluating their performance. The main results of this article reveal that delegation of the fiscal policy to a council of country representatives and the monetary policy to a council of governors is the appropriate institutional design to reduce inflation bias and better stabilize regional, idiosyncratic supply and demand shocks in a monetary union. Copyright Kluwer Academic Publishers 2001

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  • Brigitte Godbillon & Moïse Sidiropoulos, 2001. "Designing Fiscal Institutions in a Monetary Union," Open Economies Review, Springer, vol. 12(2), pages 163-179, April.
    • Handle: RePEc:kap:openec:v:12:y:2001:i:2:p:163-179
    DOI: 10.1023/A:1008332429778
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    References listed on IDEAS

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    1. Kenneth Rogoff, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 100(4), pages 1169-1189.
    2. Beetsma, Roel M W J & Bovenberg, A Lans, 2000. "Designing Fiscal and Monetary Institutions for a European Monetary Union," Public Choice, Springer, vol. 102(3-4), pages 247-269, March.
    3. Barry Eichengreen, 1992. "Is Europe an Optimum Currency Area?," Palgrave Macmillan Books, in: Silvio Borner & Herbert Grubel (ed.), The European Community after 1992, chapter 8, pages 138-161, Palgrave Macmillan.
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    5. Waller, Christopher J, 1989. "Monetary Policy Games and Central Bank Politics," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 21(4), pages 422-431, November.
    6. Beetsma, Roel M. W. J. & Lans Bovenberg, A., 1997. "Designing fiscal and monetary institutions in a second-best world," European Journal of Political Economy, Elsevier, vol. 13(1), pages 53-79, February.
    7. Waller, Christopher J & Walsh, Carl E, 1996. "Central-Bank Independence, Economic Behavior, and Optimal Term Lengths," American Economic Review, American Economic Association, vol. 86(5), pages 1139-1153, December.
    8. Süppel, Ralph & von Hagen, Jürgen, 1994. "Central Bank Constitutions for Monetary Unions," CEPR Discussion Papers 919, C.E.P.R. Discussion Papers.
    9. von Hagen, Jurgen & Suppel, Ralph, 1994. "Central bank constitutions for federal monetary unions," European Economic Review, Elsevier, vol. 38(3-4), pages 774-782, April.
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    Cited by:

    1. Christos Mavrodimitrakis, 2022. "Debt stabilization and financial stability in a monetary union: Market versus authority‐based preventive solutions," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(2), pages 2582-2599, April.
    2. Ryta Dziemianowicz & Aneta Kargol-Wasiluk & Renata Budlewska, 2016. "Fiscal Councils As An Element Of The Concept Of Fiscal Governance In The European Union Member States," Equilibrium. Quarterly Journal of Economics and Economic Policy, Institute of Economic Research, vol. 11(4), pages 675-687, December.
    3. Bas van Aarle & Giovanni Di Bartolomeo & Jacob Engwerda & Joseph Plasmans, 2002. "Monetary and Fiscal Policy Design in the EMU: An Overview," Open Economies Review, Springer, vol. 13(4), pages 321-340, October.
    4. Laurent GAGNOL & Moise SIDIROPOULOS, 2001. "The policy mix in a monetary union under alternative policy institutions and asymmetries," Working Papers of BETA 2001-23, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    5. van Aarle, B. & Di Bartolomeo, G. & Engwerda, J.C. & Plasmans, J.E.J., 2001. "Monetary and fiscal policy design in the EMU using a dynamic game approach : An overview," Other publications TiSEM 355822b0-4ad6-4792-b0d6-7, Tilburg University, School of Economics and Management.

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