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Intra-European Union Imbalances and Cyclical Position: Does Monetary Policy Matter?

Economic Imbalances and Institutional Changes to the Euro and the European Union

ISBN: 978-1-78714-510-8, eISBN: 978-1-78714-509-2

ISSN: 1569-3767

Publication date: 23 October 2017

Abstract

We analyze the determinants of the cyclical position in some Baltics and South-Eastern European countries as well as peripheral European countries over the period 2000–2013. Specifically, we consider a sample of eight economies: Croatia, Estonia, Latvia, and Lithuania for the sub-sample of Baltics and South-Eastern European economies; and Greece, Ireland, Portugal, and Spain for the sub-sample covering EMU peripheral countries. To this end, we proceed in two steps. In the first, we simulate Taylor rules for each studied countries in order to see to what extent the effective monetary policy has suffered from an expansionary bias. Such analysis is conducted for both peripheral and Central, Eastern, and South-Eastern Europe (CESE) countries. In a second step, we compare the simulated Taylor rules for our selected CESE countries with the Eurozone Taylor rule. Our contribution is threefold. First we show that the ineffectiveness of monetary policy to face imbalances – and especially financial imbalances – suggest that the EU should adopt macroprudential measures. Second, the experience of CESE and Peripheral countries suggests that fiscal policy has tended to be pro-cyclical or at least neutral. Third, we underline the importance of using the Macroeconomic Imbalance Procedure as a tool to implement automatic adjustment mechanisms.

Keywords

Citation

Allegret, J.-P. and Sallenave, A. (2017), "Intra-European Union Imbalances and Cyclical Position: Does Monetary Policy Matter?", Economic Imbalances and Institutional Changes to the Euro and the European Union (International Finance Review, Vol. 18), Emerald Publishing Limited, Bingley, pp. 357-386. https://doi.org/10.1108/S1569-376720170000018017

Publisher

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Emerald Publishing Limited

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