"Sovereign Debit Crisis, Fiscal Consolidation and Quantitative Easing in a Monetary Union"
In a stylized model of Economic and Monetary Union (EMU), where centralized and national policy authorities strategically interact, this paper shows that ‘quantitative easing’ (QE) operates as an indirect risk-sharing mechanism that could improve EMU stability and the welfare of (a part of the) member states. The authors consider global financial instability and its impact on the sovereign debts of peripheral countries. On the one hand, QE reallocates a part of the cost of stabilizing EMU from the periphery to the core; on the other hand, it partially internalizes the fact that monetary union stabilization is a public good. The rationale of the finding is that QE policies reduce the cost of fiscal adjustment in the peripheral countries and incentivize consolidation of their public balance sheets. Conversely, QE is not required in the core; it thus comes at a cost for central countries.
Marcello Messori is Professor of Economics at the Department of Political Science, LUISS University (Rome) and Director of the LUISS School of European Political Economy. He teaches Macroeconomics and International Economics. He taught at the Department of Economics, University of Rome ‘Tor Vergata’ from the mid 1990s until the 2011-2012 academic year. He is the Chairman of the Scientific Committee of CER (Rome) and has published more than 150 works in Italian, English, French, and German. In the past, his main fields of research were: monetary and banking theory, macroeconomic theory, the history of economic analysis, and the empirical study of the Italian economic system.
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