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Andersen, Torben M. --- "An adequate macroeconomic policy mix in EMU?" [2003] ELECD 124; in Tumpel-Gugerell, Gertrude; Mooslechner, Peter (eds), "Structural Challenges for Europe" (Edward Elgar Publishing, 2003)

Book Title: Structural Challenges for Europe

Editor(s): Tumpel-Gugerell, Gertrude; Mooslechner, Peter

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781843764748

Section: Chapter 24

Section Title: An adequate macroeconomic policy mix in EMU?

Author(s): Andersen, Torben M.

Number of pages: 14

Extract:

24. An adequate macroeconomic
policy mix in EMU?
Torben M. Andersen

1. INTRODUCTION

A key question for the performance of Economic and Monetary Union
(EMU) is whether the chosen set-up provides sufficient leverage to pursue
adequate macroeconomic stabilization policies. This issue is particularly
important given the macroeconomic assignment ­ the Maastricht assign-
ment ­ established for EMU. This has two important parts. First, monetary
policy has been delegated to the European Central Bank (ECB), while fiscal
policy remains a national issue and thus decentralized. Second, the ECB
has been given the express overriding mandate to maintain price stability.
This is here interpreted in the sense that the main objective of ECB is to
target inflation (cf. also ECB 1999). Would the mix of a centralized mon-
etary policy and decentralized fiscal policies leave a problem of coordina-
tion of macroeconomic policies, and does the assignment of objectives
imply that there will be a systematic stabilization deficit?
Substantial coordination problems may arise if fiscal policy decisions
can be taken after monetary policy decisions, see, for example Dixit (2000),
Dixit and Lambertini (2000a, b), Beetsma and Bovenberg (1998, 1999),
Beetsma et al. (2001) and Leitemo (2000). In this case fiscal policy decisions
may unravel monetary commitments, and fiscal authorities gain a strategic
advantage vis-à-vis monetary authorities. Two arguments can be advanced
why these problems would not arise in EMU. First, monetary policy deci-
sions can be taken and implemented more quickly than fiscal policy deci-
sions, which implies that monetary policy actually ...