How the euro crisis evolved and how to avoid another

EMU, fiscal policy and credit ratings

Vito Polito, Mike Wickens

Research output: Contribution to journalArticle

3 Citations (Scopus)
77 Downloads (Pure)

Abstract

This paper argues that the crisis was an outcome of EMU: setting a common monetary policy for countries with different initial inflation rates. The crisis countries were those with high inflation rates which then had negative real interest rates and consequently over-borrowed. Current policy discussions focus on crisis measures - fiscal, banking and political union - and not avoiding another crisis. This paper suggests two ways to avoid a future crisis: offset an inappropriate monetary policy using fiscal policy; markets could better price loan rates by taking into account default risk. The paper shows that neither was done prior to the crisis.
Original languageEnglish
Pages (from-to)364-374
Number of pages10
JournalJournal of Macroeconomics
Volume39
Issue numberPart B
Early online date27 Sep 2013
DOIs
Publication statusPublished - Mar 2014

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Fiscal policy
Credit rating
Euro crisis
Inflation rate
Monetary policy
Default risk
High inflation
Fiscal
Banking
Loan rates

Cite this

How the euro crisis evolved and how to avoid another : EMU, fiscal policy and credit ratings. / Polito, Vito; Wickens, Mike.

In: Journal of Macroeconomics, Vol. 39, No. Part B, 03.2014, p. 364-374.

Research output: Contribution to journalArticle

Polito, Vito ; Wickens, Mike. / How the euro crisis evolved and how to avoid another : EMU, fiscal policy and credit ratings. In: Journal of Macroeconomics. 2014 ; Vol. 39, No. Part B. pp. 364-374.
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