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Public Debt, Policy Mix and European Stability

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  • François Langot

    (IZA - Institute for the Study of Labor, GAINS - Groupe d'Analyse des Itinéraires et des Niveaux Salariaux - UM - Le Mans Université, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

Abstract

This paper highlights the specics of a monetary union, such as the Euro area, regarding the possible choices of monetary and scal policies. As the dynamics of public debt are specic to the choices made by each government, I show that the dynamic stability of the area requires coordination of scal policies, particularly in the case of a liquidity trap situation. My results suggest that a scal union, taking the form of a common debt, guarantees the dynamic stability of the area, notwithstanding the monetary policy, chosen or constrainedthus improving institutional robustness of the European Union.

Suggested Citation

  • François Langot, 2020. "Public Debt, Policy Mix and European Stability," Working Papers hal-02895635, HAL.
    • Handle: RePEc:hal:wpaper:hal-02895635
    Note: View the original document on HAL open archive server: https://hal.science/hal-02895635
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    References listed on IDEAS

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    Keywords

    Euro area; Taylor rule; Fiscal rule; public debt; NK model; Fiscal theory of price level;
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