Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/98748
Authors: 
Arora, Sanchit
Reicher, Claire
Year of Publication: 
2014
Series/Report no.: 
Kiel Advanced Studies Working Papers 465
Abstract: 
We study the evolution of the response of fiscal policy to monetary policy shocks in the EMU in the light of two important events: the signing of the Maastricht treaty in 1992 and the introduction of the EMU in 1999. Based on impulse responses from a panel VAR, we find that fiscal and monetary policy acted neutrally toward each other before the Maastricht Treaty; fiscal and monetary policy acted as substitutes immediately after the Maastricht Treaty; and fiscal and monetary policy acted as complements after the introduction of the EMU. These results holds for a set of 11 non-EMU countries as well, which indicates that the evolution of the fiscal response to monetary shocks within the EMU has broadly mirrored global developments. One example of such a global development is the global shift toward lower interest rates and tighter fiscal policy during the 1990s.
Subjects: 
monetary policy
fiscal policy
panel VAR
Maastricht Treaty
EMU
JEL: 
E52
E62
E65
Document Type: 
Working Paper

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