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)
145 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

Fingerprint Dive into the research topics of 'How the euro crisis evolved and how to avoid another: EMU, fiscal policy and credit ratings'. Together they form a unique fingerprint.

  • Cite this