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Fiscal Policy Independence in a Monetary Union

Author

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  • Masson, Paul R
  • Melitz, Jacques

Abstract

Do plans for a monetary union in Europe call for limits on the freedom of the member countries to use fiscal policy? To provide a tentative answer, we simulate the IMF model MULTIMOD, given various shocks, in the case of a European Monetary Union consisting only of France and Germany. The results clearly indicate the possible value of allowing unfettered use of fiscal policy in both countries, The reasons lie partly in differences in the initial position of the two, partly in differences in their preferences. We also examine the change in the policy significance of the current account in the monetary union. Current account imbalances clearly cease to have the same significance in a monetary union; but they do not therefore become irreleva.

Suggested Citation

  • Masson, Paul R & Melitz, Jacques, 1990. "Fiscal Policy Independence in a Monetary Union," CEPR Discussion Papers 414, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:414
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    Citations

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    Cited by:

    1. R. Sean Craig, 1994. "Who will join EMU? Impact of the Maastricht convergence criteria on economic policy choice and performance," International Finance Discussion Papers 480, Board of Governors of the Federal Reserve System (U.S.).
    2. repec:hal:spmain:info:hdl:2441/1826 is not listed on IDEAS
    3. Michel Aglietta & Merih Uctum, 1995. "Fiscal consolidation in Europe," Research Paper 9519, Federal Reserve Bank of New York.
    4. Catherine Bruno & Jacques Le Cacheux & Catherine Mathieu, 1991. "L'Union monétaire européenne : état des lieux, projets et enjeux," Revue de l'OFCE, Programme National Persée, vol. 38(1), pages 93-142.

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