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Is there a trade-off between free capital mobility, financial stability and fiscal policy flexibility in the EMU?

Canale, Rosaria Rita and de Grauwe, Paul and Foresti, Pasquale and Napolitano, Oreste (2018) Is there a trade-off between free capital mobility, financial stability and fiscal policy flexibility in the EMU? Review of World Economics, 154 (1). pp. 177-201. ISSN 1610-2878

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Identification Number: 10.1007/s10290-017-0302-4

Abstract

The recent dynamics characterizing the Eurozone economy suggest the existence of a new policy trilemma faced by its member countries. According to this policy trilemma, there is a trade-off between free capital mobility, financial stability and fiscal policy flexibility. In this paper, we analyze the foundations of such a trade-off and, based on the data for 11 Eurozone countries, present an empirical investigation on the existence of the trilemma. The results highlight the existence of the trade-off, with some differences between member countries. The existence of this trilemma in the Eurozone provides arguments for implementing centralized financial supervision together with fiscal and monetary reforms that should strengthen the currency union.

Item Type: Article
Official URL: https://link.springer.com/journal/10290
Additional Information: © 2017 The Authors © CC BY 4.0
Subjects: H Social Sciences > HC Economic History and Conditions
H Social Sciences > HG Finance
J Political Science > JN Political institutions (Europe)
JEL classification: C - Mathematical and Quantitative Methods > C2 - Econometric Methods: Single Equation Models; Single Variables > C21 - Cross-Sectional Models; Spatial Models; Treatment Effect Models
C - Mathematical and Quantitative Methods > C2 - Econometric Methods: Single Equation Models; Single Variables > C23 - Models with Panel Data
E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy Formation, Macroeconomic Aspects of Public Finance, Macroeconomic Policy, and General Outlook > E61 - Policy Objectives; Policy Designs and Consistency; Policy Coordination
F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F41 - Open Economy Macroeconomics
Sets: Departments > European Institute
Collections > Economists Online
Date Deposited: 02 Feb 2018 11:30
Last Modified: 02 Feb 2018 11:49
URI: http://eprints.lse.ac.uk/id/eprint/86629

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