COORDINATION OF MONETARY AND FISCAL POLICY IN A MONETARY UNION: POLICY ISSUES AND ANALYTICAL MODELS

In: The Manchester School, Band 75, Heft s1, S. 21-43

Abstract

The European Monetary Union raises new and interesting questions about the coordination of monetary and fiscal policy. In this lecture, I discuss some of these questions and the answers that a new class of models—new neoclassical synthesis (NNS) models—is currently giving to them. I will argue that the new questions expose some weaknesses in current NNS modeling; in particular, the models do not seem to explain the positive correlation between national inflation and growth differentials that has been observed in the European data. I also review some recent work that has been done on policy coordination within a currency union.