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The European Stability Pact and feedback policy effects

Author

Listed:
  • Jérôme Creel

    (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po)

Abstract

With a two-country dynamic model in a monetary union with wealth private behaviors, we study the implications of public debt on monetary and fiscal policies. The model used has Keynesian features in the short run and Wicksellian ones in the long run. We analyse the effects of asymmetric fiscal policies in Euroland and show that such a situation creates two feedback effects which reduce the efficiency of economic policies. First, because of the inability of one government to implement an expansionary fiscal policy, the other government has to substitute for it to reach economic targets. Second, the ECB's involvement in macroeconomic stabilisation will be exacerbated. The more substantial these effects, the more coordination is needed between European governments and the ECB.

Suggested Citation

  • Jérôme Creel, 2002. "The European Stability Pact and feedback policy effects," Post-Print hal-03417628, HAL.
    • Handle: RePEc:hal:journl:hal-03417628
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    Cited by:

    1. repec:hal:wpspec:info:hdl:2441/3221 is not listed on IDEAS
    2. Jérôme Creel & Jacques Le Cacheux, 2006. "La nouvelle désinflation compétitive européenne," Revue de l'OFCE, Presses de Sciences-Po, vol. 98(3), pages 7-36.
    3. repec:hal:wpspec:info:hdl:2441/2085 is not listed on IDEAS
    4. Jérôme Creel, 2002. "Strategic interactions between monetary and fiscal policies: a case study for the European Stability Pact," Post-Print hal-00972776, HAL.
    5. Bruck, Tilman & Zwiener, Rudolf, 2006. "Fiscal policy rules for stabilisation and growth: A simulation analysis of deficit and expenditure targets in a monetary union," Journal of Policy Modeling, Elsevier, vol. 28(4), pages 357-369, May.
    6. repec:spo:wpmain:info:hdl:2441/3221 is not listed on IDEAS
    7. repec:spo:wpecon:info:hdl:2441/3221 is not listed on IDEAS
    8. repec:hal:spmain:info:hdl:2441/5221 is not listed on IDEAS
    9. repec:spo:wpecon:info:hdl:2441/2085 is not listed on IDEAS
    10. repec:hal:spmain:info:hdl:2441/2085 is not listed on IDEAS
    11. repec:spo:wpmain:info:hdl:2441/2085 is not listed on IDEAS
    12. repec:hal:spmain:info:hdl:2441/3221 is not listed on IDEAS
    13. repec:spo:wpmain:info:hdl:2441/5221 is not listed on IDEAS

    More about this item

    Keywords

    EMU; Public debt; Monetary policy;
    All these keywords.

    JEL classification:

    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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