Monetary Policy, Macroeconomic Policy Mix and Economic Performance in the Euro Area

Hein, Eckhard; Truger, Achim

doi:10.4337/9781847205438.00019

Cited by 7 publications

(5 citation statements)

References 33 publications

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“…For instance, Gali and Perotti (2003) find evidence of a fiscal policy that is becoming more counter‐cyclical over time in the countries that form the European Monetary Union, and they remark that this is a trend that other developed countries are also following. In turn, Hein and Truger (2006) have some doubts concerning the ability of the European governments in maintaining such kind of policy, since evidence points to some countries being not capable to keep public deficits below the 3 percent of the GDP target, in a moment when the European economy performs poorly. These authors contrast the inability of the Euro area governments with the well succeeded North‐American fiscal policy, which has been in fact strongly counter‐cyclical.…”

Section: Introductionmentioning

confidence: 99%

On the stability of endogenous growth models

Gomes

2009

Journal of Economic Studies

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PurposeThe purpose of this paper is to present three modified versions of the simple AK endogenous growth model.Design/methodology/approachSuch frameworks stress the role of consumers' sentiment, the impact of fiscal policy and the effect of non‐optimal investment decisions made by firms. In all the cases, today's decisions take into consideration the economic performance of the previous period; in the first case, households react pro‐cyclically to the output path; in the second case, a counter‐cyclical fiscal policy is considered; and in the third case, firms adopt a pro‐cyclical behavior concerning investment choices.FindingsThe author studies the stability properties of the three models and concludes that, on each one of them, a saddle‐path stable equilibrium exists.Originality/valueThe paper accentuates the relevance of the reaction of the economic agents relatively to the business cycle. By assuming that the behavior of consumers, government and firms is a behavior of reaction to economic fluctuations, we find interesting and relevant results in what concerns the conventional intertemporal optimization growth model.

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Section: Introductionmentioning

confidence: 99%

On the stability of endogenous growth models

Gomes

2009

Journal of Economic Studies

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“…5 The ECB has tended to tighten whenever inflation increased above the target without relaxing when inflation expectations came down. For a general critique of the ECB's 'anti-growth bias' see Bibow (2002Bibow ( , 2005aBibow ( , 2005b Hein (2002) and Hein/Truger (2006b Hein (2006aHein ( , 2006b) for the integration of real debt effects into Kaleckian models of distribution and growth with conflict inflation.…”

Section: The Macroeconomic Impact Of Monetary Policy and Wage Developmentioning

confidence: 99%

Fiscal Policy and Macroeconomic Performance in the Euro Area: Lessons for the Future

Hein¹,

Truger²

2007

Euroland and the World Economy

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractSince the start of the European Monetary Union fiscal policy in the Euro area has been dominated by the Stability and Growth Pact (SGP). Quite obviously the SGP has been unsuccessful in fulfilling its goals, fiscal sustainability and supporting economic growth. More and more countries have exceeded the 3 percent of GDP limit for the budget deficit, while at the same time macroeconomic performance has been unsatisfactory. We analyse fiscal policy and its macroeconomic impact for the Euro area as a whole and for selected countries and compare it with US fiscal policy, with a special emphasis on the period 2001-2005. Whereas US fiscal policy has been strongly counter-cyclical, thus stabilising the economy, in the Euro area fiscal policy has been much more restrictive and has had procyclical and therefore destabilising effects for many countries. However, one cannot put all the blame on fiscal policy. The ECB's restrictive monetary policy and divergent and destabilising wage developments across the Euro area are at least as important as fiscal policy in the explanation of the Euro area's weak economic performance. As a possible solution for the future, we suggest to replace the SGP by expenditure paths as coordination tool, and we discuss an important modification of the concept. Such expenditure paths could co-ordinate fiscal policies across the Euro area in a counter-cyclical way and at the same time ensure fiscal sustainability. Unfortunately, as long as monetary and wage policies remain uncoordinated and destabilising, any improvements in fiscal policy will not be very effective in enhancing economic performance.JEL-Code: E 62, E 63, E 65, E 61.

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“…Until 2003 the Bank of England had an inflation target of 2.5 percent (+/-1percent) for the retail prices index.22 For a more detailed analysis of ECB policies and its effects in a heterogeneous Euro area seeHein/Truger (2007c).…”

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confidence: 99%

Fiscal Policy in the Macroeconomic Policy Mix: A Critique of the New Consensus Model and a Comparison of Macroeconomic Policies in France, Germany, the UK and Sweden from a Post-Keynesian Perspective

Hein¹,

Truger²

2011

Credit, Money and Macroeconomic Policy

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The New Consensus approach in macroeconomics is criticised for its exclusive but unwarranted reliance on stabilising monetary policies, for its ill-designed approach to the role of wages and wage policies, and for its complete neglect of fiscal policies. From a Post-Keynesian perspective, it is argued that fiscal policies play an important role for macroeconomic development, albeit the whole macroeconomic policy-mix of monetary, fiscal and wage policies as well as open economy conditions should be considered. Based on this view macroeconomic performance and macroeconomic policies in France, Germany, Sweden and the UK between 1996 and 2005 are analysed, with a special focus on the role of fiscal policies. It is shown that the fiscal policy stance is important for the explanation of different developments in these economies. However, fiscal policies are not the whole story, monetary policies, wage policies and open economy conditions matter as well.

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Monetary Policy, Macroeconomic Policy Mix and Economic Performance in the Euro Area

Cited by 7 publications

References 33 publications

On the stability of endogenous growth models

On the stability of endogenous growth models

Fiscal Policy and Macroeconomic Performance in the Euro Area: Lessons for the Future

Fiscal Policy in the Macroeconomic Policy Mix: A Critique of the New Consensus Model and a Comparison of Macroeconomic Policies in France, Germany, the UK and Sweden from a Post-Keynesian Perspective

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