Author(s)

Jason Jones

Department of Economics, Furman University, Greenville, USA.

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.

Fiscal Policy; Policy Interaction; EMU

Jones, J. (2012) Discretionary Fiscal Policy and the European Monetary Union. Modern Economy, 3, 742-751. doi: 10.4236/me.2012.36095.