Abstract:

European Monetary Union member countries are trying to ensure both legal harmonization and coordination of fiscal policies. Countries which have to accord with the Maastricht criteria are also aim to political union as a member of Monetary Union. The basic problem arises at this point. Utilizing panel vector autoregression analysis and data from 12 member countries of the European Monetary Union during the period 1986-2011, we investigate the relationship between the macroeconomic variables that are specified in Maastricht criteria of fiscal policy harmonization as well as the GDP growth rates and net exports/GDP. Countries are divided into two groups considering macroeconomic development similarities. The empirical analysis confirms our expectations in two striking results: (1) A shock to GDP growth rate and net export/GDP mostly decreases public debt/GDP growth rate. (2) The deficit/GDP and public debt/GDP growth rates shows an expected positive response to a shock in themselves and then an expected negative response to GDP growth rate.

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