We build a model to study the interaction between default risk, policy changes, and financial frictions within a monetary union. The model features a centralised central bank and decentralised fiscal authorities. Countries have different reputations for fiscal stability, modelled as different...

Debt Sustainability Analysis (DSA) relies on macroeconomic and fiscal policy assumptions; it plays an essential role in providing an anchor for bilateral negotiations and surveillance in the context of reformed EU fiscal rules. While the European Commission assumes a constant short-run fiscal...

This paper presents a detailed analysis of fiscal frameworks across the six Western Balkan economies utilizing a newly compiled dataset based on the European Commission's Fiscal Governance Database. The analysis reveals that although all six Western Balkan countries have implemented some form of...

Current fiscal regulations worsened the economic situation in the euro area during the financial and sovereign debt crisis. Regulations that allow more flexibility during downturns and have a countercyclical effect are needed. Five suggestions for a new fiscal package: new spending rules,...

We assess the drivers of fiscal sustainability in 20 OECD economies between 1950 and 2019. We find stable long-term relationships between government revenues and expenditures as well as between the primary budget balance and past public debt ratio for the full panel. Performing an expanding...

This paper focuses on the importance of fiscal policy rules for the conduct of monetary policy in the euro area, building upon the idea that monetary and fiscal policy should not be conducted in isolation. We derive a fiscal closure rule for the euro area that is consistent with the requirements...

How is the price level determined in a monetary union when the common monetary policy pegs the nominal interest rate? How are the price levels in the member countries determined? We extend the fiscal theory of the price level to the case of a heterogenous monetary union. Price level determinacy...

We show that some types of fiscal rules can mitigate the well-known procyclical bias in public capital expenditures. Past research has found that fiscal adjustment episodes coincide with large public investment cuts, a pattern we also document in a sample of 75 advanced and emerging economies...

We use a SVAR approach to the effects of fiscal and monetary policies, as well as their interactions (policy mix) for the US and the Euro Area (EMU). Overall, our results show that these two cases are different from each other. First, while in the case of the US there is evidence of Keynesian...