De Economist

, Volume 140, Issue 1, pp 16–44 | Cite as

Fiscal stabilisation and monetary integration in Europe: A short-run analysis

  • Frederick Van Der Ploeg


An adverse supply shock hits a two-country Mundell-Fleming world and causes unemployment and a higher cost of living. The optimal budgetary policies under non-cooperative and under international policy coordination are then contrasted under a regime of floating exchange rates, a regime of managed exchange rates with hegemony (such as the EMS), and a symmetric regime of fixed exchange rates (such as the EMU). The welfare loss depends on unemployment, real wage income and budgetary imbalance. Attention is also paid to the effects of indexation of wages on the cost of living and of interactions between Europe and the US. The results shed some light on the short-run stabilisation aspects of the proposals of the Delors Committee for economic and monetary union in Europe.


Exchange Rate Real Wage Monetary Union Policy Coordination Fixed Exchange Rate 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Basevi, Giorgio and Francesco Giavazzi (1987), ‘Conflicts and Coordination in the European Monetary System,’ in: A. Steinherr and D. Weiserbs (eds.),Employment and Growth: Issues for the 1980's, Dordrecht.Google Scholar
  2. Branson, William H. and Julio J. Rotemberg (1980), ‘International Adjustment with Wage Rigidity,’European Economic Review, 13, pp. 309–322.Google Scholar
  3. Bruno, Michael and Jeffrey D. Sachs (1985),The Economics of Worldwide Stagflation, Oxford.Google Scholar
  4. Canzoneri, Matthew B. and J.A. Gray (1985), ‘Monetary Policy Games and the Consequences of Non-cooperative Behaviour,’International Economic Review, 26, pp. 547–564.Google Scholar
  5. Canzoneri, Matthew B. and Dale W. Henderson (1987),Strategic Aspects of Macroeconomic Policymaking in Interdependent Economies, mimeo, Board of Governors of the Federal Reserve System, Washington, D.C.Google Scholar
  6. Commission of the European Communities (1990), ‘One Market, One Money,’European Economy.Google Scholar
  7. Delors Committee (1989),Report on Economic and Monetary Union in the European Community, Committee for the Study of Economic and Monetary Union, chaired by Jacques Delors.Google Scholar
  8. Fleming, J.M. (1962), ‘Domestic Financial Policies under Fixed and Floating Exchange Rates,’IMF Staff Papers, 9, pp. 369–379.Google Scholar
  9. Frenkel, Jacob A., Assaf Razin and Steven Symansky (1989), ‘International Spillouers of Taxation,’ Working Paper No. 2927, NBER, Cambridge, MA.Google Scholar
  10. Frenkel, Jacob A. and Assaf Razin (1989), ‘International Effects of Tax Reforms,’Economic Journal (Supplement), 99, pp. 38–58.Google Scholar
  11. Garretsen, Harry and Robert Lensink (1989), ‘International Policy Coordination and European Wage Rigidity,’De Economist, 137, pp. 76–90.Google Scholar
  12. Giavazzi, Francesco and Alberto Giovannini (1989a), ‘Monetary Policy Interactions under Managed Exchange Rates,’Economica, 56, pp. 199–214.Google Scholar
  13. Giavazzi, Francesco and Alberto Giovannini (1989b),Limiting Exchange Rate Flexibility: The European Monetary System, Cambridge.Google Scholar
  14. Goodhart, Charles (1988), ‘An Approach to European Currency Unification,’ LSE, Financial Markets Group, London.Google Scholar
  15. Gordon, Robert J. (1987), ‘Wage Gaps versus Output Gaps: Is there a Common Story for all of Europe?,’ in: H. Giersch (ed.),Macro and Micro Policies for More Growth and Employment, Tübingen.Google Scholar
  16. Gros, Daniel and Timothy Lane (1989), ‘Monetary Policy Interactions within the EMS,’ Research Department WP/89/8, IMF, Washington, D.C.Google Scholar
  17. Hamada, Koichi (1976), ‘A Strategic Analysis of Monetary Interdependence,’Journal of Political Economy, 84, pp. 677–700.Google Scholar
  18. Ishiyama (1975), ‘The Theory of Optimum Currency Areas: A Survey,’IMF Staff Papers, pp. 344–383.Google Scholar
  19. Keen, Michael (1989), ‘Pareto-improving Indirect Tax Harmonisation,’European Economic Review, 33, pp. 1–12.Google Scholar
  20. Kehoe, P.J. (1987), ‘Coordination of Fiscal Policies in a World Economy,’Journal of Monetary Economics, 19, pp. 349–376.Google Scholar
  21. Kenen, Peter B. (1987), ‘Global Policy Optimization and the Exchange-rate Regime,’Journal of Policy Modelling, 9, pp. 19–63.Google Scholar
  22. Kenen, Peter B. (1988), ‘Exchange Rates and Policy Coordination in an Asymmetric Model,’ Discussion Paper No. 240, Centre for Economic Policy Research, London.Google Scholar
  23. McKibbin, Warwick J. and Jeffrey D. Sachs (1986a), ‘Comparing the Global Performance of Alternative Exchange Rate Systems,’ Working paper No. 2024, NBER, Cambridge, MA.Google Scholar
  24. McKibbin, Warwick J. and Jeffrey D. Sachs (1986b), ‘Coordination of monetary and fiscal policies in the OECD,’ Working Paper No. 1800, NBER, Cambridge, MA, forthcoming in Jacob Frenkel (ed.),International Aspects of Fiscal Policy, Chicago.Google Scholar
  25. McKinnon, Ronald I. (1986), ‘Monetary and Exchange Rate Policies for International Financial Stability,’ mimeo, Stanford University.Google Scholar
  26. Melitz, Jacques (1988), ‘Monetary Discipline, Germany and the European Monetary System,’ in: G. Francesco, S. Micossi and M. Miller (eds.),The European Monetary System, Cambridge.Google Scholar
  27. Mundell, Robert A. (1968),International Economics, New York.Google Scholar
  28. Oudiz, Gillez and Jeffrey Sachs (1984), ‘Macroeconomic Policy Coordination among the Industrial Economies,’Brookings Papers on Economic Activity, 1, pp. 1–77.Google Scholar
  29. Ploeg, Frederick van der (1988a), ‘International Interdependence and Policy Coordination in Economies with Real and Nominal Wage Rigidity,’Greek Economic Review, 10, pp. 1–48.Google Scholar
  30. Ploeg, Frederick van der (1988b), ‘International Policy Coordination in Interdependent Monetary Economies,’Journal of International Economics, 25, pp. 1–23.Google Scholar
  31. Ploeg, Frederick van der (1989), ‘Towards Monetary Integration in Europe,’ in:De Europese Monetaire Integratie. vier visies, The Netherlands Scientific Council for Government Policy, The Hague, The Netherlands.Google Scholar
  32. Ploeg, Frederick van der (1990a), ‘International Coordination of Monetary Policies under Alternative Exchange-rate Regimes,’ in: Frederick van der Ploeg (ed.),Advanced Lectures in Quantitative Economics, London.Google Scholar
  33. Ploeg, Frederick van der (1990b), ‘Macroeconomic Policy Coordination during the Various Phases of Economic and Monetary Integration in Europe,’ in: Michael Emerson (ed.),One Market, One Money, Volume 2, Commission of the European Communities, Brussels.Google Scholar
  34. Ploeg, Frederick van der (1990c), ‘Monetary Discipline and the Real Value of Government Debt: The Case for an Independent EuroFed,’ forthcoming in: Harry Verbon and Frans A.A.M. van Winden (eds.),The Political Economy of Government Debt, Amsterdam.Google Scholar
  35. Razin, Assaf and Efraim Sadka (1989), ‘Integration of the International Capital Markets: The Size of Government and Tax Coordination,’ Working Paper No. 2863, NBER, Cambridge, MA.Google Scholar
  36. Roubini, Nouriel (1987a), ‘Leadership and Policy Cooperation in the EMS,’ mimeo, Harvard University.Google Scholar
  37. Roubini, Nouriel (1987b), ‘Leadership and Cooperation under Alternative Exchange Rate Regimes: A Simulation Approach,’ mimeo, Harvard University.Google Scholar

Copyright information

© Kluwer Academic Publishers 1992

Authors and Affiliations

  • Frederick Van Der Ploeg
    • 1
  1. 1.University of Amsterdam, TI and CEPRNetherlands

Personalised recommendations