Abstract
Flexibility in fiscal policy is a necessary ingredient in a policy package for EMU. Even with strong endogenous shock absorbers, such as real wage flexibility, fiscal policy can speed up the stabilization process in response to demand shocks. If real wages are rigid, as they typically are in Europe, fiscal policy cannot remove the adverse effects of asymmetric supply shocks, but it can successfully limit the divergence between member states. Monetary flexibility, a possible option in the run-up to EMU, cannot completely make up for the stabilization function of fiscal policy.
Original language | English |
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Journal | Review of International Economics |
Volume | 5 |
Issue number | 5, Supplement European Economic |
Pages (from-to) | 36-54 |
Number of pages | 19 |
ISSN | 0965-7576 |
DOIs | |
Publication status | Published - Nov 1997 |
Externally published | Yes |
Keywords
- Monetary policy
- European economic integration