The Stability Pact and the Interdependence of Monetary and Fiscal Policy Rules

  • Andrew Hughes Hallett
  • Peter McAdam


Monetary union in Europe has ushered in a new economic regime in which monetary and fiscal policies are treated separately, and will be treated separately. This follows from the decision to create a completely independent Central Bank to run monetary policy for the whole European Area. That was a deliberate choice, and was always intended to be the key feature of Europe’s monetary regime. But if monetary policy is to be run independently of any of the national governments, then fiscal policies — which remain almost entirely in the hands of those national governments — will, by the same token, also become independent of monetary policy. That makes the issue of the rules by which monetary policies are chosen, and the extent to which they interact with fiscal policy (or vice versa), of crucial importance. Monetary and fiscal policies may be chosen and operated independently, but they will jointly determine the outcomes for each economy nevertheless.


Monetary Policy Fiscal Policy Euro Area Nominal Exchange Rate Inflation Target 
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. Artis, M. and M. Buti (2000) ‘Close to Balance or in Surplus: A policy makers guide to the Implementation of the Stability and Growth Pact’, Discussion Paper No. 2515, Centre for Economic Policy Research, London.Google Scholar
  2. Bryant, R., P. Hooper and C. Mann (eds). (1993) Evaluating Policy Regimes, The Brookings Institute, Washington DC.Google Scholar
  3. European Commission (1990) ‘One Market. One Money’. European Economy. 44. Official Publications. Luxembourg.Google Scholar
  4. Fair, R.C. (1998) ‘Estimated Stabilisation Costs of EMU’, National Institute Economic Review, April, 164, 90–99.Google Scholar
  5. Holly, S and A.J. Hughes Hallett (1989) Optimal control, expectations and uncertainty Cambridge University Press.Google Scholar
  6. Hughes Hallett A.J. and P. McAdam (1998) ‘Fiscal Deficit Reductions in Line with the Maastricht Criteria: An Empirical Analysis.’ in Jeffry Frieden, Daniel Gros and Erik Jones, (Eds.), The New Political Economy of EMU. Boulder: Rowman and Littlefield. pp. 83–123.Google Scholar
  7. Hughes Hallett, A.J. and P. McAdam (1999) ‘Implications of the Growth and Stability Pact: Why the Growth Element is Important’, A.J. Hughes Hallett, M. Hutchison and S.E. Hougaard Jensen (Eds.), Fiscal Aspects of European Monetary Integration, Cambridge University Press.Google Scholar
  8. Hughes Hallett. A.J.P. Minford and A. Rastogi (1993) ‘The European Monetary System: achievements and survival’. in Bryant. R., P. Hooper and Mann (Eds.). Evaluating Policy Regimes. The Brookings Institute. Washington DC.Google Scholar
  9. Juillard, M., D. Laxton, P. McAdam and H. Pioro (1998) ‘An Algorithm Competition: First-Order Iterations versus Newton-based Techniques’, Journal of Economic Dynamics and Control, 22, pp. 1291–1318.CrossRefGoogle Scholar
  10. Laxton, D., P. Isard, H. Farugee, E. Prasad, and B. Turtleboom (1998)’MULTIMOD Mark III: The Core Dynamic and Steady State Models’, IMF Occasional Paper No. 164, Washington DC.Google Scholar
  11. Masson, P and B. Turtleboom (1997) ‘Characteristics of the Euro, the demand for reserves and policy co-ordination under EMU’, IMF Working Paper No. WP/ 97/ 58, Washington D.C., May 1997.Google Scholar
  12. Masson, P, S Symansky and G Meredith (1990) ‘Multimod Mark II: A Revised And Extended Model’, IMF Occasional Paper 71, Washinton DC.Google Scholar
  13. McAdam, P. (1999), ‘The long Run in Macro Models: A Guide’, in Analyses in Macroeconomic Modelling, edited by A. J. Hughes-Hallett and Peter McAdam, Kluwer Academic Press.Google Scholar
  14. McAdam, P. and A. Hughes Hallett (1999), ‘Nonlinearity, Computational Complexity and Macroeconomic Modelling’, Journal of Economic Surreys, 13, 577–618.Google Scholar
  15. McCarthy, M (1972) ‘Appendix’ on p. 392 of B.G. Hickman (ed) ‘Economic Models of Cyclical Behaviour’, NBER Studies of Income and Wealth, vols I and I I, Columbia University Press, New York, NY.Google Scholar
  16. Mitchell, P., J. Sault, P.N. Smith and K.F. Wallis (1998) ‘Comparing Global Economic Models’, Economic Modelling, 15, 1–48.CrossRefGoogle Scholar
  17. Salmon, M. (1982) ‘Error Correction Mechanisms’, Economic Journal, 92, 615–29.CrossRefGoogle Scholar
  18. Sargent, T And N. Wallace (1981) ‘Some Unpleasant Monetarist Arithmetic’, Federal Reserve Bank Of Minneapolis Quarterly Review, 5, 1–17.Google Scholar
  19. von Hagen, J., A. Hughes Hallett, R. Perotti and R. Strauch (2000) ‘Budgetary Consolidation in EMU’, report submitted to the European Commission ( DG II ), June 2000.Google Scholar
  20. Woodford, Michael (1995) ‘Price-Level Determinacy without Control of a Monetary Aggregate’, Carnegie Rochester Conference Series on Public Policy, 43(0), December, 1–46.Google Scholar

Copyright information

© Springer Science+Business Media Dordrecht 2001

Authors and Affiliations

  • Andrew Hughes Hallett
    • 1
  • Peter McAdam
    • 2
  1. 1.CEPRUniversity of StrathclydeUK
  2. 2.CEPRUniversity of Kent at Canterbury and New ScholarUK

Personalised recommendations