The Fiscal Framework in a Currency Union: Lessons from Comparison between the Euro Area and the Eastern Caribbean Currency Union

Andrew Hughes Hallett, Svend E. Hougaard Jensen

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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.
Original languageEnglish
JournalThe World Economy
Issue number6
Pages (from-to)803-823
Number of pages21
Publication statusPublished - 2016
EventThe 45th Annual Monetary Studies Conference - Kingston, Jamaica
Duration: 2 Oct 20134 Oct 2013
Conference number: 45


ConferenceThe 45th Annual Monetary Studies Conference
Internet address

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