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

35 Pages Posted: 11 Sep 2008

See all articles by Jan P. A. M. Jacobs

Jan P. A. M. Jacobs

University of Groningen - Faculty of Economics and Business

Gerard H. Kuper

University of Groningen - Faculty of Economics and Business

Johan Verlinden

affiliation not provided to SSRN

Date Written: January 9, 2007

Abstract

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

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

Jan P.A.M. Jacobs

University of Groningen - Faculty of Economics and Business ( email )

Postbus 72
9700 AB Groningen
Netherlands

Gerard H. Kuper (Contact Author)

University of Groningen - Faculty of Economics and Business ( email )

Postbus 72
9700 AB Groningen
Netherlands

Johan Verlinden

affiliation not provided to SSRN

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