We reconsider the issues of fiscal policy interdependence in a monetary union, challenging the view that non co-ordination is always preferable. Moreover, we show that an expenditure bias occurs irrespective of the fiscal regime in place. We argue that a contractualist approach à la Walsh...

We provide an updated survey of the literature on time inconsistency, focusing on the key contributions that followed the seminal papers of Kydland and Prescott (1977) and Barro and Gordon (1983a). Starting from the traditional models addressing the time inconsistency problem of monetary policy,...

In this paper we analyse the impact of fiscal policy co-ordination in a monetary union on the size of the spending bias, inflation and the optimal degree of conservatism of the central bank. Our main result is that, when the fiscal authorities internalise the spillover effects originating from...