Monetary-Fiscal Policy Interactions in the Euro Area

130 Pages Posted: 23 Sep 2021 Last revised: 18 Nov 2021

See all articles by Xavier Debrun

Xavier Debrun

International Monetary Fund (IMF) - Research Department

Klaus Masuch

European Central Bank (ECB)

Isabel Vansteenkiste

European Central Bank (ECB)

M. Ferdinandusse

European Central Bank (ECB)

Leopold von Thadden

European Central Bank (ECB)

Sebastian Hauptmeier

European Central Bank (ECB) - Directorate General Economics

Mario Alloza

Banco de España

Krzysztof Bańkowski

European Central Bank (ECB)

João Domingues Semeano

European Central Bank (ECB)

Jens Eisenschmidt

European Central Bank (ECB)

Tilman Bletzinger

European Central Bank (ECB)

Othman Bouabdallah

European Central Bank (ECB)

Gabriele Galati

De Nederlandsche Bank

Pablo Burriel

Banco de España

Sándor Gardó

European Central Bank (ECB)

Cristina D. Checherita-Westphal

European Central Bank (ECB)

Felix Hammermann

Deutsche Bundesbank; European Central Bank (ECB); University of Kiel

Stephan Krikor Haroutunian

European Central Bank (ECB)

Jacopo Cimadomo

European Central Bank

Benjamin Hartung

University of Bonn

Pascal Jacquinot

European Central Bank (ECB)

Christophe Kamps

European Central Bank (ECB)

Steven Poelhekke

University of Auckland

Ivan Kataryniuk

Banco de España

Bartosz Maćkowiak

European Central Bank (ECB)

Joost Röttger

Deutsche Bundesbank

Falk Mazelis

European Central Bank (ECB)

Stephan Sauer

European Central Bank (ECB)

Katja Schmidt

Banque de France

Carlos Montes-Galdón

European Central Bank (ECB)

Sebastian Schmidt

European Central Bank (ECB)

Philip Muggenthaler

European Central Bank (ECB)

Carolin Nerlich

European Central Bank (ECB) - Directorate General Economics

Ralph Setzer

European Central Bank (ECB)

Galo Nuño

European Central Bank (ECB)

Vilém Valenta

European Central Bank (ECB)

Anamaria Piloiu

Goethe University Frankfurt

Guido Wolswijk

European Central Bank (ECB)

Massimiliano Pisani

Bank of Italy

Chloé Derouen

European Central Bank (ECB)

Thomas Faria

European Central Bank (ECB)

Jean Barthélemy

Banque de France

Dennis Bonam

De Nederlandsche Bank

Giuseppe Ferrero

Bank of Italy

José Garcia

New University of Lisbon - Nova School of Business and Economics

José Cardoso da

Bank of Portugal

Kai Christoffe

European Central Bank (ECB)

Tommy Kostka

European Central Bank (ECB)

Sebastiaan Pool

De Nederlandsche Bank - Research Department

Julia Körding

European Central Bank (ECB)

Marzia Romanelli

Bank of Italy

Kamila Slawinska

European Central Bank (ECB)

Marco Marrazzo

European Central Bank (ECB)

Talga Ozden

De Nederlandsche Bank

Agnieszka Trzcinska

European Central Bank (ECB)

Alari Paulus

University of Essex - Institute for Social and Economic Research (ISER)

Alexandru Penciu

European Central Bank (ECB)

Date Written: September, 2021

Abstract

The last review of the ECB’s monetary policy strategy in 2003 followed a period of predominantly upside risks to price stability. Experience following the 2008 financial crisis has focused renewed attention on the question of how monetary and fiscal policy should best interact, in particular in an environment of structurally low interest rates and persistent downside risks to price stability. This debate has been further intensified by the economic impact of the coronavirus (COVID-19) pandemic. In the euro area, the unique architecture of a monetary union consisting of sovereign Member States, with cross-country heterogeneities and weaknesses in its overall construction, poses important challenges. Against this background, this report revisits monetary-fiscal policy interactions in the euro area from a monetary policy perspective and with a focus on the ramifications for price stability and maintaining central bank independence and credibility. The report consists of three parts. The first chapter presents a conceptual framework for thinking about monetary-fiscal policy interactions, thereby setting the stage for a discussion of specifically euro area aspects and challenges in subsequent parts of the report. In particular, it reviews the main ingredients of the pre-global financial crisis consensus on monetary-fiscal policy interactions and addresses significant new insights and refinements which have gained prominence since 2003. In doing so, the chapter distinguishes between general conceptual aspects – i.e. those aspects that pertain to an environment characterised by a single central bank and a single fiscal authority and those aspects that pertain to an environment characterised by a single central bank and many fiscal authorities (a multi-country monetary union). ...

Keywords: Fiscal Policy, Monetary Policy, Monetary Union

JEL Classification: E52, E58, E62, E63, F45

Suggested Citation

Debrun, Xavier and Masuch, Klaus and Vansteenkiste, Isabel and Ferdinandusse, M. and von Thadden, Leopold and Hauptmeier, Sebastian and Alloza, Mario and Bańkowski, Krzysztof and Semeano, João Domingues and Eisenschmidt, Jens and Bletzinger, Tilman and Bouabdallah, Othman and Galati, Gabriele and Burriel, Pablo and Gardó, Sándor and Checherita-Westphal, Cristina D. and Hammermann, Felix and Hammermann, Felix and Hammermann, Felix and Haroutunian, Stephan Krikor and Cimadomo, Jacopo and Hartung, Benjamin and Jacquinot, Pascal and Kamps, Christophe and Poelhekke, Steven and Kataryniuk, Ivan and Maćkowiak, Bartosz and Röttger, Joost and Mazelis, Falk and Sauer, Stephan and Schmidt, Katja and Montes-Galdón, Carlos and Schmidt, Sebastian and Muggenthaler, Philip and Nerlich, Carolin and Setzer, Ralph and Nuño, Galo and Valenta, Vilém and Piloiu, Anamaria and Wolswijk, Guido and Pisani, Massimiliano and Derouen, Chloé and Faria, Thomas and Barthélemy, Jean and Bonam, Dennis and Ferrero, Giuseppe and Garcia, José and da, José Cardoso and Christoffe, Kai and Kostka, Tommy and Pool, Sebastiaan and Körding, Julia and Romanelli, Marzia and Slawinska, Kamila and Marrazzo, Marco and Ozden, Talga and Trzcinska, Agnieszka and Paulus, Alari and Penciu, Alexandru, Monetary-Fiscal Policy Interactions in the Euro Area (September, 2021). ECB Occasional Paper No. 2021273, Available at SSRN: https://ssrn.com/abstract=3928294 or http://dx.doi.org/10.2139/ssrn.3928294

Xavier Debrun (Contact Author)

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-8321 (Phone)
202-623-6343 (Fax)

Klaus Masuch

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Isabel Vansteenkiste

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

M. Ferdinandusse

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Leopold Von Thadden

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Sebastian Hauptmeier

European Central Bank (ECB) - Directorate General Economics ( email )

Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany

Mario Alloza

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

Krzysztof Bańkowski

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

João Domingues Semeano

European Central Bank (ECB)

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Jens Eisenschmidt

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Tilman Bletzinger

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Othman Bouabdallah

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Gabriele Galati

De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

Pablo Burriel

Banco de España ( email )

Madrid 28014
Spain

Sándor Gardó

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Cristina D. Checherita-Westphal

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Felix Hammermann

University of Kiel ( email )

Olshausenstr. 40
D-24118 Kiel, Schleswig-Holstein 24118
Germany

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Stephan Krikor Haroutunian

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Jacopo Cimadomo

European Central Bank ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Benjamin Hartung

University of Bonn

Regina-Pacis-Weg 3
Postfach 2220
Bonn, D-53012
Germany

Pascal Jacquinot

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Christophe Kamps

European Central Bank (ECB) ( email )

Sonnemannstrasse 20
D-60314 Frankfurt am Main
Germany

HOME PAGE: http://https://www.ecb.europa.eu/pub/research/authors/profiles/christophe-kamps.en.html

Steven Poelhekke

University of Auckland

Ivan Kataryniuk

Banco de España

Alcala 50
Madrid 28014
Spain

Bartosz Maćkowiak

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Joost Röttger

Deutsche Bundesbank

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Falk Mazelis

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Stephan Sauer

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

HOME PAGE: http://www.ecb.int

Katja Schmidt

Banque de France ( email )

Paris
France

Carlos Montes-Galdón

European Central Bank (ECB)

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Sebastian Schmidt

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Philip Muggenthaler

European Central Bank (ECB)

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Carolin Nerlich

European Central Bank (ECB) - Directorate General Economics ( email )

Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany

Ralph Setzer

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Galo Nuño

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Vilém Valenta

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Anamaria Piloiu

Goethe University Frankfurt ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

Guido Wolswijk

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Massimiliano Pisani

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Chloé Derouen

European Central Bank (ECB)

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Thomas Faria

European Central Bank (ECB)

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Jean Barthélemy

Banque de France

Paris
France

Dennis Bonam

De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands
0031205242924 (Phone)

Giuseppe Ferrero

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

José Garcia

New University of Lisbon - Nova School of Business and Economics ( email )

Lisbon
Portugal

José Cardoso Da

Bank of Portugal

Rua Francisco Ribeiro, 2
Lisbon, 1150-165
Portugal

Kai Christoffe

European Central Bank (ECB)

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Tommy Kostka

European Central Bank (ECB)

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Sebastiaan Pool

De Nederlandsche Bank - Research Department ( email )

P.O. Box 98
1000 AB Amsterdam
Netherlands

Julia Körding

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Marzia Romanelli

Bank of Italy ( email )

Via Nazionale 91
00184 Roma
Italy

Kamila Slawinska

European Central Bank (ECB)

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Marco Marrazzo

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Talga Ozden

De Nederlandsche Bank

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

Agnieszka Trzcinska

European Central Bank (ECB)

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Alari Paulus

University of Essex - Institute for Social and Economic Research (ISER) ( email )

Wivenhoe Park
Colchester CO4 3SQ
United Kingdom

Alexandru Penciu

European Central Bank (ECB)

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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