Essays on fiscal policy in a monetary union

Abstract

The economic and monetary union (EMU) is characterized by a framework for economic policy-making in Europe which is unique. While the single monetary policy is oriented towards a Union-wide objective, namely the maintenance o f price stability, the other policy areas involving fiscal and wage policies largely remain the competence o f national governments and other national actors. This thesis investigates some o f the mechanisms o f propagation o f asymmetric shocks in a monetary union and the effect that they may have on the conduction of policies and ultimately on macroeconomic variables. In the context o f the European Monetary Union (EMU), and without any pretension to be exhaustive, the question is addressed o f whether the current framework o f policy coordination, based on a common monetary policy oriented to price stability, national autonomy o f fiscal policies within common budgetary rules and wage policies determined at the national level, is appropriate in ensuring macroeconomic stabilization. The focus on asymmetric shocks is due to the specific importance they have in a monetary union. In the case of symmetric shocks, the situation is not veiy different from that o f a country which has its own currency. On the other hand, the effects of asymmetric shocks on policies and macroeconomic outcomes in a monetary union was (and probably is) not yet completely understood. It is partially because o f this lack o f understanding that the presence of big asymmetric shocks was used by economists as a criterion to decide whether a country should join the EMU.