How Do Monetary and Fiscal Policy Interact in the European Monetary Union? [with Comments]

2004 ◽  
Vol 2004 (1) ◽  
pp. 241-325
Author(s):  
Matthew B. Canzoneri ◽  
Robert E. Cumby ◽  
Behzad T. Diba ◽  
Gauti B. Eggertsson ◽  
Carlo A. Favero
Keyword(s):  
Fiscal Policy ◽  
Monetary Union ◽  
European Monetary Union ◽  
European Monetary ◽  
Monetary And Fiscal Policy

Monetary Integration, Fiscal Divergence and Current Account Imbalances in Europe

2018 ◽  
Vol 15 (1) ◽  
Author(s):  
Gunther Schnabl
Keyword(s):  
Fiscal Policy ◽  
Monetary Union ◽  
Current Account ◽  
European Monetary Union ◽  
Exchange Rate Regime ◽  
Early Years ◽  
Monetary Integration ◽  
Fiscal Policies ◽  
European Monetary ◽  
Panel Regressions

Abstract The paper scrutinizes the role of diverging fiscal policy stances for diverging current account positions in Europe with a focus on the European Monetary Union (EMU). In a heterogeneous monetary union fiscal policy has the task to absorb asymmetric shocks to ensure the efficacy of the one-size monetary policy. It is argued that since the early years of the European Monetary Union divergent fiscal policies combined with monetary expansion constituted a major determinant of current account divergence within the euro area, which finally led into the European debt and financial crisis. Panel regressions reveal a significant impact of fiscal policies on current account positions, which to a large extent are independent from the exchange rate regime and turn out to be contingent on monetary and fiscal policy mix. Based on the findings economic policy recommendations are presented.

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