Monetary Policy in the Euro Area: The Impact of Fiscal Closure Rules
35 Pages Posted: 11 Sep 2008
Date Written: January 9, 2007
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