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Title: |
Fiscal Discipline in Monetary Unions |
| Author: |
De Grauwe, Paul |
| Author
Affiliation: |
U Leuven and
Centre for European Policy Studies |
| Source: |
International Economic Journal, Spring 1992, v. 6, no. 1, pp. 101-93 |
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Publication Date: |
Spring 1992 |
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Abstract: |
In this paper evidence pertaining to the
fiscal discipline that monetary unions impose on their members is
presented. This evidence suggests, first, that member states of many
monetary unions and of fixed exchange-rate regimes enjoy a remarkable
degree of fiscal autonomy. Second, as a rule these member states have
strong incentives to follow "orthodox" budgetary policies. Third, the
experience of a number of small BMS-countries illustrates the need to
maintain relatively flexible national fiscal policies, including the
need to run large but temporary budget deficits when the country is hit
by negative shocks. The examples of these countries illustrates that
this can be done without undermining the credibility of the fixed
exchange-rate commitment, provided the no-monetization constraint is
strictly adhered to. |
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