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Discretionary Fiscal Policy and the European Monetary Union

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DOI: 10.4236/me.2012.36095    4,900 Downloads   6,921 Views   Citations
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ABSTRACT

A model of circumstances that can lead to changes in the way a fiscal authority conducts policy after joining a monetary union is presented and empirically tested for the euro area. According to the model consolidation fatigue, shock asymmetry, or differences in the relative weight placed on output/price stabilization between the new and old monetary authority can lead to greater reliance on fiscal policy. Empirical evidence suggests that there has been a change in the conduct of fiscal policy in the euro area which is most likely due to consolidation fatigue and a stronger emphasis on price stabilization by the European Central Bank.

Conflicts of Interest

The authors declare no conflicts of interest.

Cite this paper

J. Jones, "Discretionary Fiscal Policy and the European Monetary Union," Modern Economy, Vol. 3 No. 6, 2012, pp. 742-751. doi: 10.4236/me.2012.36095.

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