The stability Pact and the coordination of fiscal policies in the EMU

This paper studies the relationship between the Stability and Growth Pact (SGP) and the coordination of fiscal policies in the EMU. Results show that the coordination is an efficient tool to increase EMU stabilization, even though the overall impact greatly varies according to the nature of the shock that occurs. Fiscal coordination appears to be compatible with the SGP and coordination gains can actually be enhanced with the SGP. Nethertheless, results are closely related to the effects of monetary and fiscal policies on output.