Monetary Policy in the Euro Area: The Impact of Fiscal Closure Rules

This paper focuses on the importance of fiscal policy rules for the conduct of monetary policy in the euro area, building upon the idea that monetary and fiscal policy should not be conducted in isolation. We derive a fiscal closure rule for the euro area that is consistent with the requirements of the Maastricht Treaty and the Stability and Growth Pact. We show that incorporating this fiscal closure in a simple Vector AutoRegression (VAR) system indeed seems to affect monetary policy in the euro area.

Keywords: monetary policy, fiscal policy closure rule, Maastricht Treaty, Vector AutoRegressions (VAR), multiplier analysis

JEL Classification: C51, C52, E63

Suggested Citation: Suggested Citation

Jacobs, Jan P.A.M. and Kuper, Gerard H. and Verlinden, Johan, Monetary Policy in the Euro Area: The Impact of Fiscal Closure Rules (January 9, 2007). Available at SSRN: https://ssrn.com/abstract=1265562 or http://dx.doi.org/10.2139/ssrn.1265562