EMU and Fiscal Discipline: The End of the Depreciation Threat


Heinemann, Friedrich


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URL: http://ub-madoc.bib.uni-mannheim.de/662
URN: urn:nbn:de:bsz:180-madoc-6621
Document Type: Working paper
Year of publication: 1998
Publication language: English
Institution: Sonstige Einrichtungen > ZEW - Leibniz-Zentrum für Europäische Wirtschaftsforschung
MADOC publication series: Veröffentlichungen des ZEW (Leibniz-Zentrum für Europäische Wirtschaftsforschung) > ZEW Discussion Papers
Subject: 330 Economics
Classification: JEL: F31 H60 E61 ,
Subject headings (SWD): Währungsunion , Globalisierung , Industriestaaten , Makroökonomie
Abstract: Are the characteristics of the exchange rate regime relevant for the degree of fiscal discipline? What are the conclusions for fiscal behavior in Europe after the transition to EMU? These are the central questions that are analyzed in this paper from a theoretical point of view. After a general discussion of these issues, the optimization process of fiscal agents is analyzed in the context of a model based on the monetary approach to the exchange rate. The model conclusion is that monetary union leads to more fiscal discipline for high debt countries that used to have a benign neglect stance on the exchange rate. Contrasting to that, low debt countries that used to pay much attention to the exchange rate in the past will behave less disciplined in the future.
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Heinemann, Friedrich (1998) EMU and Fiscal Discipline: The End of the Depreciation Threat. Open Access [Working paper]
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