Bulletin n. 3/2007 | ||
December 2007 | ||
Chari V.V., Kehoe Patrick J. |
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On the need for fiscal constraints in a monetary union | ||
in Journal of Monetary Economics , Volume 54, Issue 8, November 2007 , 2007 | ||
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. | ||