Empirical fiscal policy reaction functions based on ex post data cannot be said to describe fiscal policymakers intentions, since they utilise data which did not exist when their decisions were made. A characterisation of what fiscal policymakers were trying to do requires real time data. This...

This paper evaluates the Stability and Growth Pact. After examining the rules in place and the experience so far, the Pact is analysed from a political economy perspective, focusing on the choice for so-called soft law and drawing inferences from characteristics of successful fiscal rules at the...

This paper investigates the role that Eurobonds could play in making EMU stable in the long run. We establish that EMU's budgetary problems are not only caused by lack of budgetary discipline, but also by the large and sudden fiscal deterioration during the financial crisis. This type of shock...

This paper evaluates the cyclicality, inertia and effect of EU accession on fiscal policy in Central and Eastern Europe using a real time dataset. Budget balances are found to react in a stabilising way to economic activity, and they are less inert than is typically found in Western Europe....

This paper presents a framework that quantifies the trade-offs for a central bank that includes financial stability in its strategy and uses macroprudential instruments next to the interest rate. It is an innovative application of the Kaminsky and Reinhart early warning method, by assuming that...

This paper analyses the problem faced by CEECs wishing to join the Euro who must hit both an inflation and exchange rate criterion during a period of nominal convergence. This process requires either an inflation differential, an appreciating nominal exchange rate, or a combination of the two,...

This paper provides further model-based evidence about the effects of engaging in an Economic and Monetary Union (EMU) when monetary transmission mechanisms differ across countries. Sensitivity analysis to alternative monetary regimes shows that with EMU, where exchange-rate fluctuations are...

The EU accession countries have made remarkable progress in developing their financial sectors. Nevertheless, potential risks to banking sector stability remain. We take stock of these risks, with a focus on the challenges posed by the EU accession process. Important potential risks we identify...

This paper reviews the rationale for co-ordination of macroeconomic policies in the euro area. It makes clear what co-ordination can do and what it cannot do in European practice. It concludes that with the Pact for Stability and Growth, the framework for co-ordination of fiscal policies has by...

The independent nature of the Central Bank is often associated with achieving low and stable inflation. Further to that the merits of independence are stretched to achieving low(er) output variability when compared to a government run monetary policy. In this paper we use the Alesina and Alesina...