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Alternative monetary policies and fiscal regime in new EU members

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  • Mikek, Peter
Abstract
I investigate the relevance of a fiscal regime for disinflation in new EU member states (NMS). I generalize the framework of [Obstfeld, M., Rogoff, K., 1995. Exchange rate dynamics redux. Journal of Political Economy 103, 624-660] to incorporate the non-Ricardian fiscal regime and two monetary feedback rules: inflation targeting and depreciation targeting. Euro accession requires disinflation and stabilization of the exchange rate and thus restrictive monetary policy. The model illustrates that a sustainable and prudent fiscal policy is a necessary condition for successful stabilization of inflation. Thus, the lack of prudent fiscal policy, through its effects on inflation, may undermine the EMU accession of large NMS even when their fiscal outcomes fall within the Maastricht range.

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  • Mikek, Peter, 2008. "Alternative monetary policies and fiscal regime in new EU members," Economic Systems, Elsevier, vol. 32(4), pages 335-353, December.
    • Handle: RePEc:eee:ecosys:v:32:y:2008:i:4:p:335-353
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    3. Astrid Ayala & Szabolcs Blazsek, 2012. "How has the financial crisis affected the fiscal convergence of Central and Eastern Europe to the Eurozone?," Applied Economics Letters, Taylor & Francis Journals, vol. 19(5), pages 471-476, March.
    4. Jovanovic, Branimir & Petreski, Marjan, 2014. "Monetary policy, exchange rates and labor unions in SEE and the CIS during the financial crisis," Economic Systems, Elsevier, vol. 38(3), pages 309-332.
    5. Mikek, Peter, 2009. "Does trade integration contribute to synchronization of shocks in Europe?," MPRA Paper 101413, University Library of Munich, Germany.
    6. Ayala, Astrid & Blazsek, Szabolcs, 2013. "Structural breaks in public finances in Central and Eastern European countries," Economic Systems, Elsevier, vol. 37(1), pages 45-60.
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