On the need for fiscal constraints in a monetary union

By V. Chari, Patrick J. Kehoe. 2007

169 citations recorded by the source corpus.

The desirability of fiscal constraints in monetary unions depends critically on whether the monetary authority can commit to following its policies. If it can commit, then debt constraints can only impose costs. If it cannot commit, then fiscal policy has a free-rider problem, and debt constraints may be desirable. This type of free-rider problem is new and arises only because of a time inconsistency problem.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/f7747fb8feeb0b0cfdcd3d8a97f7c95e125b0666

Citations in the corpus

• The Macroeconomic Costs and Benefits of the EMU and Other Monetary Unions: An Overview of Recent Research (2010, unknown): “Chari and Kehoe (2007) derive the strong result that fiscal constraints can only be beneficial in the absence of monetary commitment.”