Fiscal and Monetary Policy in the Eurozone : Theoretical Concepts and Empirical Evidence.

Intro -- Contents -- List of Figures, Tables -- Preface -- Acknowledgements -- Introduction -- Subject and Approach -- The Policy Framework in the Eurozone -- Fiscal Policy in the Eurozone -- Monetary Policy in the Eurozone -- Policy Coordination in the Eurozone -- Chapter 1: The Policy Framework in the Eurozone -- 1.1. The European Monetary Union: Historical Roots and Recent Events -- Box 1.1: The Optimal Currency Area Theory. -- Asymmetric Shocks and Automatic Balancing Mechanisms -- 1.2. Policy Principles from World War II to the Fall of Bretton Woods -- Box 1.2: Fiscal and Monetary Policy Under Alternative Exchange Rate Regimes and Perfect Capital Mobility: The Mundell-Fleming Model -- Case 1. Flexible Exchange Rate Regime -- Monetary Policy Effectiveness (Changes in Money Supply). An increase in money supply (M/P = l1Y − l2i, equation 1.6) reduces the local interest rate and increases investments and output (eqs 1.1 and 1.3). Since the model represents an open economy, the l -- Fiscal Policy Effectiveness (Changes in Government Spending). An increase in government expenditure shifts the IS curve to the right (eq. 1.1). The shift causes the local interest rate to go above the global rate. The increase in local interest leads to -- Case 2. Fixed Exchange Rate Regimes -- Monetary Policy Effectiveness (Changes in Money Supply). Under the fixed exchange rate system, the local central bank or any monetary authority only changes the money supply to maintain a specific exchange rate. If there is pressure to depreciate the dome -- Fiscal Policy Effectiveness (Changes in Government Expenditure). An increase in government spending forces the monetary authority to flood the market with local currency to keep the exchange rate unchanged. Increased government expenditure increases aggre.

1.3. From the Exchange Rate Agreements to the Common Currency: The Policy Model of the New Consensus Macroeconomics -- 1.4. The Present Policy Framework of the Eurozone -- Chapter 2: Fiscal Policy in the Eurozone -- 2.1. From Keynesian Macroeconomics to Contemporary Theory -- 2.2. Fiscal Policy Theory in the Keynesian World -- Box 2.1: Inflation and Output Effects of Expansionary Fiscal Policies: The Slope of the Supply Curve -- Box 2.2: Fiscal Policy Rules in the Eurozone. -- 2.3. Fiscal Policy and the Intertemporal Approach -- 2.4. The Evolution of the Theoretical Debate and the Case of the Eurozone -- 2.5. The Empirical Literature -- 2.6. The Issue of Public Debt and the Need to Implement Structural Public Balance Adjustments -- Chapter 3: Monetary Policy in the Eurozone -- 3.1. Theoretical Basis of the Monetary Policy Conduction -- 3.1.1. Phillips Curve a NAIRU -- 3.1.2. The Relationship between Inflation and Economic Growth -- 3.1.3. Sources of Inflation -- 3.1.3.1. Wage Shock. Sudden wage shock is usually associated with short-term output expansion (with respect to potential output level). The rise in nominal wage growth is associated with a temporary increase in real wages. It follows that the rate of infl -- 3.1.3.2. Exchange Rate Shock. The exchange rate plays an important role in transferring impulses from the external economic environment to the domestic economy (pass-through effect). The size of the pass-through effect of exchange rate highlights its impo -- 3.1.3.3. Monetary Shock. The impact of the shock in the form of monetary growth on the development of inflation in the short term has been the subject of analysis by monetary economists, but is also interesting in the current context.

3.1.3.4. Drivers of Inflation in the Eurozone. Dynamics of domestic price level is determined especially by wage and price-setting behavior that are closely related to domestic business cycle. Considering external determinants, prices of imports (especial -- 3.1.4. Effects of Reducing Inflation -- 3.1.4.1. The Benefits Associated with Reducing the Rate of Inflation. The literature provides a number of insights into the benefits associated with the functioning of the economy at a lower rate of inflation, in terms of benefits for economic growth and -- 3.1.4.2. The Impact of Nominal Wage Rigidity. Existence or the persistence of downward ware rigidity is a significant factor that must be taken into account when deciding on a further decline in inflation. In the national economy, nominal wage growth tend -- 3.1.4.3. "Summers Effect". Direction from low to even lower inflation has a significant impact on the effectiveness of monetary policy. The implementation of monetary policy in conditions with a long-term significantly low inflation rate causes problems f -- 3.1.4.4. Effects of Reducing Inflation on Real Costs Associated with Public Debt Repayments. Another factor that is important to take into account in the process of reducing the inflation rate is the tendency to increase the real costs associated with rep -- 3.1.4.5. Relationship between Interest Rates and Inflation. Questions associated with fundamental determinants of nominal interest rates are widely discussed in the recent empirical literature. Considering already mentioned deflationary pressures and near -- 3.1.5. Selected Approaches to Deflation.

3.1.5.1. Deficit Financing. One possibility to eliminate deflation by the government is to implement deficit financing. When the government moves to lower tax rates and thus increase the nominal public debt, inflation expectations will rise (e.g., the pri -- 3.1.5.2. Purchase of Real Assets or Foreign Currency. Buying assets other than government bonds can help eliminate deflation through a similar channel as deficit financing. Tax cuts are just one of the ways to raise government debt. Government debt can gr -- 3.1.5.3. Deflation in the Eurozone. Risks of deflationary spiral in the Eurozone together with low nominal interest rates policy conducted by ECB are drawing attention to the increasing number of empirical studies. Changes in the relative importance of in -- 3.1.6. Exchange Rate and Inflation Relationship -- 3.1.7. Consequences of Exchange Rate Fluctuations -- 3.1.8. Real Exchange Rate -- 3.1.8.1. Prices of Tradable and Non-tradable Goods. An important factor we consider is the development of relative prices of tradable goods with respect to the development of relative prices of non-tradable goods between two countries. It is important to -- 3.1.8.2. Twin Deficits (Imbalances) in the Eurozone. Origins and implications of twin deficits occurrence in a large scale of countries seem to be a center of rigorous empirical as well as theoretical investigation for decades. The reality of persisting f -- 3.2. Conduction of Monetary Policy and its Macroeconomic Aspects -- 3.2.1. The Importance of the Nominal Anchor in the Conduction of Monetary Policy -- 3.2.1.1. Exchange Rate Targeting. Exchange rate targeting is usually related to expectations associated with the following effects:.

3.2.1.2. Monetary Targeting. Fixing the exchange rate is not an appropriate strategy for economies, (1) where central banks have low foreign exchange reserves, (2) in which governments fail to implement a prudent and sustainable fiscal policy. Both aspec -- 3.2.1.3. Inflation Targeting. During the last two decades, market economies have moved forward an implementation of monetary policy strategy that has become known as inflation targeting. In most cases, the reason for the transition to this system was a pr -- 3.2.1.4. Nominal Income Targeting. Another suitable alternative for choosing a nominal anchor for advanced economies, alongside inflation targeting, is to target a nominal income. -- 3.2.1.5. Crawling Peg Regime. Monetary targeting is not appropriate for economies with unstable demand for money (particularly in the case of economies in the initial phase of transformation). In such a case, the only appropriate alternative seems to be f -- 3.2.2. Transmission Mechanism of Monetary Policy -- 3.2.3. The Importance of the Operational Criterion in the Transmission Mechanism of Monetary Policy -- 3.2.3.1. Interest and Quantitative Variables as Operational Criteria. The management of operational criteria consists of two dimensions that consider time horizon and underlying targets. The first is to modify operational criteria to make them flexibly re -- 3.2.3.2. The Role of the Monetary Policy Strategy in Choosing the Operational Criterion. The central bank's monetary policy strategy plays an important role in selecting its operational objective. In order to achieve the key objectives, the central bank a.

3.2.3.3. Operational Criteria and Monetary Instruments. The implementation of monetary policy through the management of the development of operational criteria requires the use of specific monetary instruments that could be used for day-to-day liquidity m.

Fiscal and Monetary Policy in the Eurozoneoffers systematic analyses of the economic policy framework of the Eurozone and critiques current ideas about how to move forward, making it essential reading for postgraduate students of economics and of keen interest to researchers, policymakers, journalists, and financial strategists.

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Electronic reproduction. Ann Arbor, Michigan : ProQuest Ebook Central, 2024. Available via World Wide Web. Access may be limited to ProQuest Ebook Central affiliated libraries.