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EMU and Politically-Induced Output Variability: Can the Stability and Growth Pack Help?

By Robert Ackrill and Dean Garratt

Abstract

Rogoff, 1985, suggested that central bank independence would lead to lower inflation but greater output variability. Alesina and Gatti, 1995, demonstrated Rogoff’s work was partial by only considering economic sources of output variability. By including political factors, circumstances could be identified when making a central bank independent could reduce both inflation and output variability. In EMU, however, there is no choice about central bank independence. Starting with a review of the analysis presented by Alesina and Gatti, this paper suggests national fiscal policies could also be a source of politically-induced output variability. It reinterprets the analysis of Alesina and Gatti and identifies circumstances when the Stability and Growth Pact could help to reduce output variability in EMU

Publisher: Dept. of Economics, University of Leicester.
Year: 1998
OAI identifier: oai:lra.le.ac.uk:2381/4306

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Citations

  1. (1995). Independent Central Banks: Low Inflation at
  2. (1983). Rules, Discretion, and Reputation in a M odel of M onetary Policy’. doi
  3. (1985). The Optimal Degree of Commitment to an Intermediate M onetary Target’. doi

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