Sep 21, 2003

Articles in journals

Pina, A., Dury, K.

25

27

We study the prospective operation of the Stability Pact by stochastic simulation. Using a forward-looking multi-country macroeconometric model, National Institute Global Econometric Model (NiGEM), comprising individual blocks for 10 Euroland economies, the Pact’s provisions are formalised in detail, and alternative monetary and fiscal rules are compared. Rules are simple and credible, but a fiscal feedback parameter is made conditional on the stages of the excessive deficit procedure. Under a baseline broadly consistent with Stability Programmes, excessive deficits are overall rare; pecuniary sanctions only happen when 'fiscal fatigue' delays corrective action; and monetary policy is found to be of secondary importance to the results.

Stability Pact,Stochastic simulation,Fiscal and monetary rules,