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On the Desirability of Fiscal Constraints in a Monetary UnionVaradarajan V. ChariUniversity of Minnesota - Twin Cities - Department of Economics; Federal Reserve Bank of Minneapolis; National Bureau of Economic Research (NBER) Patrick J. KehoeFederal Reserve Bank of Minneapolis - Research Department; University of Minnesota - Twin Cities - Department of Economics; National Bureau of Economic Research (NBER) November 1, 2003 Abstract: The desirability of fiscal constraints in monetary unions depends critically on whether the monetary authority can commit to follow its policies. If it can commit, then debt constraints can only impose costs. If it cannot commit, then fiscal policy has a free-rider problem, and debt constraints may be desirable. This type of free-rider problem is new and arises only because of a time inconsistency problem.
Keywords: Free Riding Problem, Growth and Stability Pact, Time Consistency, International Cooperation JEL Classification: E4, E42, E5, E58, F3, F31, F33, F36 working papers seriesDate posted: July 30, 2008Suggested CitationContact Information
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