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Monetary-fiscal crosswinds in the European Monetary Union
The Maastricht Treaty was designed to ensure a rigid separation between monetary and fiscal policy. The Treaty is the legal consequence of the belief that in an asymmetric federation, with a single monetary policy authority and nineteen fiscal authorities, macroeconomic stability is best achieved by a combination of a credible and independent central bank targeting price stability, and fiscal rules setting public deficit and public debt limits. Implicit in this design is the idea that active coordination between monetary and fiscal policy is not necessary to pin down the price level provided that all authorities ... (full story)