On the need for fiscal constraints in a monetary union

V. V. Chari, Patrick J. Kehoe

Research output: Contribution to journalArticlepeer-review

52 Scopus citations

Abstract

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.

Original languageEnglish (US)
Pages (from-to)2399-2408
Number of pages10
JournalJournal of Monetary Economics
Volume54
Issue number8
DOIs
StatePublished - Nov 2007

Bibliographical note

Funding Information:
We thank Kathy Rolfe and Joan Gieseke for excellent editorial assistance and the National Science Foundation for financial support. The views expressed herein are those of the authors and not necessarily those of the Federal Reserve Bank of Minneapolis or the Federal Reserve System.

Keywords

  • Free riding problem
  • Growth and stability pact
  • International cooperation
  • Time inconsistency

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