Title: Fiscal indiscipline and monetary policy in EMU: Is there any need for a fiscal policy concerned ECB?
Authors: Pasquale Foresti; Ugo Marani
Department of Legal, Historical, Economic and Social Sciences, Magna Graecia University of Catanzaro, Viale Europa, 88100, Catanzaro, Italy
Department of Economics, Management, Institutions, Federico II University of Naples, Via Cinthia, 80126, Napoli, Italy
Abstract: In this article we study the conduct of monetary policy by adopting a monetary union model in which we assume that, departing form the dominant literature, the central bank is directly concerned also about the national fiscal policies. The novelty of our analysis lies in fact that, on the basis of this assumption about the central bank's preferences, we evaluate its stabilisation effort under different scenarios of fiscal policy discipline and coordination in the union. We find that the level of conservativeness of the central bank decreases, while the presence of institutions and tools for the control and the coordination enforcement of fiscal policies are still required. Governments' lack of coordination reduces the fiscal policies stabilisation effort of the central bank, but it increases the monetary authority's reaction to supply shocks.
Keywords: European Monetary Union; fiscal stance; asymmetric shocks; monetary policy; EMU; ECB; European Central Bank; fiscal indiscipline; national fiscal policy; monetary union models; modelling; government coordination; stabilisation.
Int. J. of Monetary Economics and Finance, 2013 Vol.6, No.1, pp.81 - 95
Available online: 05 Aug 2013