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Fiscal Policy and the Maastricht Solvency Criteria
Author(s) -
Barrell Ray,
Sefton James
Publication year - 1997
Publication title -
the manchester school
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.361
H-Index - 42
eISSN - 1467-9957
pISSN - 1463-6786
DOI - 10.1111/1467-9957.00056
Subject(s) - economics , solvency , fiscal policy , debt , macroeconomics , convergence (economics) , unemployment , construct (python library) , monetary economics , fiscal union , monetary policy , keynesian economics , market liquidity , computer science , programming language
In this paper we examine the implications of fiscal policy and growing debt stocks for the economy. We construct an extended Mundell–Fleming model, along the lines of Buiter and Miller (“Monetary Policy and International Competitiveness: the Problems of Adjustment”, Oxford Economic Papers , Vol. 33 (1981), Supplement, pp. 143–175), that allows us to investigate the effects of fiscal policy and debt accumulation on an open economy. In order to analyse the implications of fiscal restrictions such as the Maastricht convergence criteria, we undertake some policy analyses on our estimated model NiGEM. This model closely resembles the theoretical construct in its long‐run structure, but allows for crucial differences in the speed of dynamic responses in a number of markets. We find that, although in the long term the level of activity is unaffected, the fiscal restrictions will reduce output and raise unemployment in the short to medium term.