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Macroeconomic Stabilization in the EMU: Rules Versus Institutions
Review of Development Economics (2005)
  • Lilia Cavallari, University of Rome III
  • Debora Di Gioacchino
This paper investigates the macroeconomic implications of different regimes of international fiscal coordination and monetary-fiscal cooperation in a monetary union with independent fiscal authorities, that act strategically vis-à-vis a common central bank. In the presence of other policy goals than cyclical stabilization, such as interest rate smoothing and fiscal stability, we show that coordination among national fiscal authorities can reduce output and inflation volatility relative to the non-cooperative setting in specific circumstances, as in case of demand disturbances, while turning potentially counterproductive otherwise. The adverse effects of union-wide coordinated fiscal measures can be attenuated in a regime of global coordination, namely, when a centralized fiscal stabilization is coordinated with the common monetary policy as well.
Publication Date
May, 2005
Citation Information
Lilia Cavallari and Debora Di Gioacchino. "Macroeconomic Stabilization in the EMU: Rules Versus Institutions" Review of Development Economics Vol. 9 Iss. 2 (2005)
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