Is There a Deflationary Bias in European Economic Policies?
34 Pages Posted: 18 Dec 2001
The research deals with the characteristics of the economic policies pursued in the Euro Area and with their theoretical fundamentals. The main interpretative hypothesis is that a deflationary bias is embodied in the ways the policy authorities act within the European framework. In order to check the existence of a deflationary bias the first step consists of separately analysing monetary and fiscal policy. The analysis of monetary policy focuses on a backward and a forward-looking monetary rule. These reaction functions are estimated to ascertain the criteria used by European Central Bank to set interest rate; we also compute a comparative analysis to stress the different behaviour of European Central Bank in comparison with the strategy pursued by Deutsche Bundesbank and Federal Reserve. Then a measure of fiscal bias is obtained through the estimation of the impact of primary surplus and total surplus on European output gap. In the final step, we search for a quantitative evaluation of the recessive propensity of both policies through an overall estimation of economic policy bias. Concluding remarks end the paper.
Keywords: Monetary and Fiscal Strategy, ECB, EMU
JEL Classification: C52, E52
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