A country in the European Monetary Union that runs very large public deficits or shows a persistently high and rising debt-to-GDP ratio violates a fiscal compact among the member countries of the union. Explain how this fiscal violation poses a challenge for the ECB in the form of moral hazard.
Answer to relevant QuestionsTransparency is a key element of the monetary policy framework.a. Explain how transparency helps eliminate the problems that are created by central bank independence.b. In what way did the financial crisis of 2007-2009 ...Suppose in an election year, the economy started to slow down. At the same time, clear signs of inflationary pressures were apparent. How might the central bank with a primary goal of price stability react? How might ...Suppose the government is heavily in debt. Why might it be tempting for the fiscal policymakers to sell additional bonds to the central bank in a move that it knows would be inflationary? What are the goals of the ECB? How are its officials held accountable for meeting them? Go to the Federal Reserve Board's Web site and locate the FOMC’s most recent statement. What did the committee members say at their last meeting regarding the Federal funds target and the two goals of price stability and ...
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