Most of the literature on the independence of the Central Bank assumes only one policy instrument is available: monetary policy. If we introduce fiscal policy as well, when preferences may differ among policy-makers, the situation is radically different. In this case fiscal policy will weaken...

We show how a stability pact based on deficit sanctions eliminates the exacerbation of debt accumulation that may arise from monetary unification. Moreover, by making sanctions contingent upon the economic situation of countries, the stability pact provides for risk sharing. Differences in...

This paper analyses the costs and benefits of European monetary unification. The benefits take the form of the reduction in exchange risk, equalization of interest rates, decline in relative price variability and general increase in economic efficiency likely to accompany unification. The costs...

In this Paper, I analyse the pros and cons of implementing structural reforms of the labour market in booms versus recessions, in light of considerations of social efficiency, political viability, and macroeconomic fine-tuning. While the optimal timing of a reform depends on the relative...

This Paper develops a framework for the analysis of the effects of institutions on economic performance in a monetary union in the presence of stabilization policy, unionized labour markets and monopolistically competitive price setting firms. Nominal wages are fixed contractually. In spite of...

If the third stage of monetary union in Europe begins on 1 January 1999, not all EU countries will participate: two, with opt-out clauses, may choose to stay out; others will have a derogation because they do not fulfil the required conditions. The Maastricht Treaty, while silent on the regime...

This paper presents a model of monetary policy-making in a federal monetary union. Central bank council members are representatives from the member states. In a repeated-game context, council members have an incentive to engage in strategic voting, trading political favours between each other....

We investigate the interdependence of fiscal policies, and in particular deficits, in the European Union using an empirical analysis based on real-time fiscal data. There are many potential reasons why fiscal policies could be interdependent, such as direct externalities due to cross-border...