Premium
Two Naked Emperors? * Concerns about the Stability & Growth Pact and Second Thoughts about Central Bank Independence
Author(s) -
BUITER WILLEM H.
Publication year - 2004
Publication title -
fiscal studies
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.63
H-Index - 40
eISSN - 1475-5890
pISSN - 0143-5671
DOI - 10.1111/j.1475-5890.2004.tb00539.x
Subject(s) - independence (probability theory) , economics , stability and growth pact , zero lower bound , central bank , monetary economics , fiscal sustainability , pact , financial stability , macroeconomics , financial system , international economics , interest rate , monetary policy , fiscal policy , law , political science , member states , european union , statistics , mathematics
This paper addresses two sets of issues relevant to current and prospective future E(M)U members: the consequences of the Stability & Growth Pact for fiscal‐financial sustainability and macroeconomic stability, and some risks associated with operational independence of the central bank. To be effective as a lender of last resort or to stabilise demand when short nominal interest rates are close to their zero lower bound, the central bank must coordinate and cooperate with the fiscal authorities. Central bank independence is unlikely to survive if such coordination and cooperation are not forthcoming.