TY - JOUR
T1 - The Fiscal Framework in a Currency Union
T2 - Lessons from Comparison between the Euro Area and the Eastern Caribbean Currency Union
AU - Hallett, Andrew Hughes
AU - Hougaard Jensen, Svend E.
PY - 2016
Y1 - 2016
N2 - This paper draws out lessons from the euro area (EA) that are transferable to the Eastern Caribbean Currency Union (ECCU) and other Caribbean economies with fixed exchange rates. Based on observations from both the EA and the ECCU, we present a new policy framework which is capable of imposing fiscal discipline, with the aim of avoiding the risk of unsustainable fiscal policies reappearing and of preventing monetary policy from being undermined by undisciplined national governments. In the ECCU case, we find that fiscal deficits are more a result of financial and trade imbalances than fiscal indiscipline per se. Consequently, constraints on overall debt, public and private, rather than direct limits on endogenous public deficits, appear to be the appropriate response.
AB - This paper draws out lessons from the euro area (EA) that are transferable to the Eastern Caribbean Currency Union (ECCU) and other Caribbean economies with fixed exchange rates. Based on observations from both the EA and the ECCU, we present a new policy framework which is capable of imposing fiscal discipline, with the aim of avoiding the risk of unsustainable fiscal policies reappearing and of preventing monetary policy from being undermined by undisciplined national governments. In the ECCU case, we find that fiscal deficits are more a result of financial and trade imbalances than fiscal indiscipline per se. Consequently, constraints on overall debt, public and private, rather than direct limits on endogenous public deficits, appear to be the appropriate response.
U2 - 10.1111/twec.12359
DO - 10.1111/twec.12359
M3 - Journal article
VL - 39
SP - 803
EP - 823
JO - The World Economy
JF - The World Economy
SN - 0378-5920
IS - 6
ER -