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How much fiscal discipline in a monetary union

de Grauwe, Paul and Ji, Yuemei (2014) How much fiscal discipline in a monetary union. Journal of Macroeconomics, 39 (Part B). pp. 348-360. ISSN 0164-0704

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Abstract

The nature of fiscal policies was changed dramatically by the creation of the Eurozone. While prior to the start of the Eurozone, national governments were sovereign in that they could back up the issue of debt by the issue of money, they lost this sovereignty in the Eurozone. This had dramatic effects that were largely overlooked by the designers of the Eurozone. First it made self-fulfilling liquidity crises possible that degenerated into solvency crises. Second, it led to the imposition of intense austerity program. We provide empirical evidence for these two effects. We argue that contrary to what was expected, i.e. that a monetary union loosens fiscal discipline, it actually leads to too much fiscal discipline.

Item Type: Article
Official URL: http://dx.doi.org/10.1016/j.jmacro.2013.08.016
Additional Information: © 2013 Elsevier
Library of Congress subject classification: J Political Science > JN Political institutions (Europe)
Sets: Departments > European Institute
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 21 Oct 2013 16:08
URL: http://eprints.lse.ac.uk/53693/

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