Canale, Rosaria Rita and Napolitano, Oreste (2010): The recessive attitude of EMU policies: reflections on the italian experience, 1998–2008.
Download (223kB) | Preview
The EMU assigns a very marginal role to economic policy and relies on the leading idea that, if prices are kept constant, there will be an automatic convergence towards long-run equilibrium income. These beliefs represent the theoretical underpinnings of fiscal and monetary policy strategies in Europe. In order to highlight the weakness of these foundations, the paper evaluates empirically the effects of public expenditure and interest rate setting on equilibrium income in Italy from 1998 to 2008. The analysis supports the conclusions that government spending has a positive impact on national income while inflation targeting has a negative impact. Moreover the empirical evidence shows that a high level of debt does not produce negative effects on GDP. Finally, at a time of financial crisis, these results appear to be reinforced for fiscal policy, but weakened for monetary policy. The paper finally states that the EMU’s rigid rules for both fiscal and monetary policy have recessive attitudes, and limit the use of instruments to deal with high levels of unemployment, definitely undermining the future existence of the single-currency area.
|Item Type:||MPRA Paper|
|Original Title:||The recessive attitude of EMU policies: reflections on the italian experience, 1998–2008|
|Keywords:||Fiscal policy, Monetary policy, EMU, Italy|
|Subjects:||E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, Macroeconomic Policy, and General Outlook > E62 - Fiscal Policy
E - Macroeconomics and Monetary Economics > E1 - General Aggregative Models > E12 - Keynes; Keynesian; Post-Keynesian
E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy
|Depositing User:||Rosaria Rita Canale|
|Date Deposited:||02. Sep 2010 12:42|
|Last Modified:||13. Feb 2013 04:38|
Alesina, A., F. Campante and G,.Tabellini (2007) “Why is fiscal policy often procyclical?”, Journal of the European Economic Association, 6(5): 1006-1036.
Allsopp, C. and D. Vines (2005) “The macroeconomic role of fiscal policy”, Oxford Review of Economic Policy, 21(4).
Arestis, P. (2005) Fiscal policy within the new consensus macroeconomic policy, Working Paper, UK Treasury.
Arestis, P., K. McCauley and M. Sawyer (2001), “Commentary. An alternative stability pact for the European Union”, Cambridge Journal of Economics, 13: 13-130.
Arestis, P. and M. Sawyer (2003) Macroeconomic policies of the Economic Monetary Union: Theoretical underpinnings and challenge, Working Paper no. 385, The Levy Economics Institute of Bard College, NY.
Arestis, P. and M. Sawyer (2005) “What is the new consensus in macroeconomics?”, in P. Arestis (ed.), Is there a new consensus in macroeconomics?, Houndmills, Basingstoke: Palgrave Macmillan.
Barro, R. (1974) “Are government bonds net wealth?”, Journal of Political Economy, 82.
Becker, T. (1997) “An investigation of Ricardian equivalence in a common trends model”, Journal of Monetary Economics, 39(3): 405-431.
Bell, S. (2003) Convergence going in, divergence coming out. Default risk premium and stabilization prospects in the Euro zone, CFEPS Working paper, no. 24.
Benhabib, J., S. Schmitt-Grohé and M. Uribe (1999) “The perils of Taylor Rules”, CEPR discussion paper, no. 2314.
Bernheim, B.D. (1987) “Ricardian equivalence: An evaluation of theory and evidence”, in S. Fischer (ed.) NBER Macroeconomics Annual 1987: 263-304.
Blanchard, O. and R. Perotti (2002) “An empirical characterization of the dynamic effects of changes in government spending and taxes on output”, Quarterly Journal of Economics, 47.
Blanchard, O.J. (2008) “The State of Macro”. NBER Working Paper No. 14259. Cambridge, MA: National Bureau of Economic Research.
Briotti, M.G. (2005) Economic reactions to public finance consolidation: A survey of the literature, Occasional Paper Series No. 38, Frankfurt: European Central Bank.
Buchanan, J.M. and G. Tullock (1962) The calculus of consent: Logical foundation of constitutional democracy, Ann Arbor, MI: University of Michigan Press.
Canale, R.R., P. Foresti, U. Marani and O. Napolitano (2008) “On the Keynesian effect of (apparent) non-Keynesian fiscal policies”, Rivista di Politica Economica, 1: 5-46.
Canale, R.R (2008) “Some positive effects of decentralized fiscal expansions in the European monetary union”, Journal of Economic Issues, 42(3).
Canale, R.R (2008) “Speculation and monetary policy behaviour in the 1992 currency crisis: The Italian case”, in collaboration with A. Montagnoli and O. Napolitano, International Economic Journal, 22(3).
Canale R.R. (2009) Central bank reaction to public deficit and sound public finance: The case of the European Monetary Union, SSRN Working Paper.
Clarida R., J. Gali and M. Gertler (1999) “The science of monetary policy: A new Keynesian perspective”, Journal of Economic Literature, 37(4).
Cochrane, J.H. (1998) “What do the VARs mean? Measuring the output effects of monetary policy”, Journal of Monetary Economics : Vol. 41, No. 2, 27, pp. 277-300(24).
Cochrane J.H. (2009) Fiscal Stimulus, Fiscal Inflation, or Fiscal Fallacies? Available online at: http://faculty.chicagobooth.edu/john.cochrane/research/Papers/.
Euromemorandum Group (2006) “A democratic economic policy alternative to the neo-liberal transformation of Europe”, Euromemorandum 2006, December.
European Central Bank (2004) Monthly Bulletin, April 2004. Fama, E. (2009) Bailouts and Stimulus Plans, Fama/French forum, available online at: http://www.dimensional.com/famafrench/2009/01/bailouts-and-stimulus-plans.html.
Fatás, A. and I. Mihov (2001) “Government size and automatic stabilizers”, Journal of International Economics. Fatás, A. and I. Mihov (2009), The Euro and Fiscal Policy, NBER Working Paper no. 14722, Cambridge, MA: National Bureau of Economic Research.
Fitoussi, J.P. and F. Saraceno (2004) “The Brussels-Frankfurt-Washington Consensus. Old and new tradeoffs in economics”, Observatoire française de conjunctures economiques, no. 2.
Fontana, G. (2009) Whither new consensus macroeconomics? The role of government and fiscal policy in modern macroeconomics, Working Paper no. 563, The Levy Economics Institute of Bard College, NY.
Fontana, G. and A. Palacio-Vera (2005) Are long-run price stability and short-run output stabilization all that monetary policy can aim for?, Working Paper no. 430, The Levy Economics Institute of Bard College, NY.
Forstater, M. and W. Mosler (2005) “The natural rate of interest is zero”, Journal of Economic Issues, 2: 536-542.
Fullwiller, S.T. (2006) Interest rates and fiscal sustainability, CFEPS Working Paper no. 53.
Gali, J. and M. Gertler (2007) Macroeconomic modeling for monetary policy evaluation, NBER Working Paper no. 13542, Cambridge, MA: National Bureau of Economic Research.
Gali, J. and T. Monacelli (2005) “Optimal fiscal policy in a monetary union”, NBER Working Papers 11815, National Bureau of Economic Research, Inc.
Giavazzi, F., and M. Pagano (1990) “Can severe fiscal adjustments be expansionary?” in O. Blanchard and S. Fischer (eds.), NBER Macroeconomics Annual. Cambridge, MA: MIT Press.
Giavazzi, F. and M. Pagano (1996) “Non Keynesian effects of fiscal policy changes: International evidence and the Swedish experience”, Swedish Economic Policy Review, vol. 3, no. 1, Spring 1996, pp. 67-103.
Gruen, D.W.R. (1991) “What people know and what economists think they know: Surveys on Ricardian Equivalence”, Australian Economic Papers, 30(56): 1-9.
Harvey, A.C. (1991) Econometric Analysis of Time Series, 2nd ed. Cambridge, MA.: The MIT Press.
Hemming, R., M. Kell and S. Mahfouz (2002) The effectiveness of fiscal policy in stimulating economic activity: A review of the literature, IMF Working Paper 02/208, Washington DC: International Monetary Fund.
Hemming, R., S. Mahfouz, and A. Schimmelpfennig (2002) Fiscal policy and economic activity in advanced economies, IMF Working Paper 02/87, Washington DC: International Monetary Fund.
Kirsanova, T., S. J. Stehm and D. Vines (2005) “The interaction between fiscal policy and monetary policy”, Oxford Review of Economic Policy, 21(4).
Kregel, J. A. (1999) “Currency stabilization through full employment: Can EMU combine price stability with employment and income growth?” Eastern Economic Journal, 25(1).
Krugman P. (2005) “Is fiscal policy poised for a comeback?”, Oxford Review of Economic Policy, 21(4). Krugman, P. (2009a) “A continent adrift”, Herald Tribune, 16 March 2009.
Krugman, P. (2009b) “The dark age of macroeconomics”, New York Times, 27 January 2009.
Kydland, E.F. and E.C. Prescott (1977) “Rules rather than discretion: The inconsistency of optimal plans”, Journal of Political Economy, 85(4): 473-491.
Lucas, R.E. (1972) “Expectations and the neutrality of money”, Journal of Economic Theory, 4: 103-124.
Palacio-Vera, A. (2005) “The ‘modern’ view of macroeconomics: some critical reflections”, Cambridge Journal of Economics, 29.
Parguez, A. (1999) “The expected failure of the European Economic and Monetary Union: A false money against the real economy”, Eastern Economic Journal, 25(1).
Perotti, R. (2007) In search of the transmission mechanism of fiscal policy, NBER Working Paper no. 13143, Cambridge, MA: National Bureau of Economic Research.
Posen, A. (2008) “The future of inflation targeting”, Challenge 51(4): 5-22.
Reich, R. (2009) “My recovery prediction”, The American Prospect, 25 March 2009.
Romer, D. (2000) “Keynesian macroeconomics without the LM curve”, Journal of Economic Perspectives, 14(2).
Sardoni, C. and L.R. Wray (2007) Fixed and flexible exchange Rates and currency sovereignty, Working Paper no. 489, The Levy Economics Institute of Bard College, NY.
Sargent, T.J. (1993) Rational expectations and inflation, 2nd edn, New York: Harper Collins.
Sargent, T. and N. Wallace (1975) “‘Rational expectations’, the optimal monetary instrument and the optimal money supply rule”, Journal of Political Economy, 83.
Sawyer, M.C. (2002) “The NAIRU, aggregate demand and investment”, Metroeconomica, 53(1): 66-94. Seater, J. J. (1993) “Ricardian Equivalence”, Journal of Economic Literature, 31(1): 142-190.
Solow, R. (2005) “Rethinking fiscal policy”, Oxford Review of Economic Policy, 21(4).
Symposium (2002) “The making of monetary policy in endogenous money theory”, Journal of Post Keynesian Economics, 24(4): 503-607.
Wray, L.R. (2003) Is Euroland the next Argentina?, CFEPS Working Paper, no. 23.