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RESEARCH PRODUCT

The macroeconomic governance of the European Monetary Union: A Keynesian perspective

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Revised version - May 2006; Extending Asensio's closed-economy framework (2005a,b) to a monetary union, we show that theprinciples of governance which emanate from the so called "New Consensus in Macroeconomics"(NCM), and therefore have been designed for presumed stationary regimes, may cause severedysfunctions, such as depressive macroeconomic policies and unemployment traps, in non-ergodicregimes. The Keynesian approach, on the other hand, pleads in favour of important changes in thecurrent governance of the eurozone. First, since the European Central Bank can not repress distributiveinflationary pressures without having non-temporary depressive effects on aggregate demand andemployment, authorities should recognize that the best way for controlling this type of inflation restson a consensual distribution of income. Second, authorities should abandon any "optimal rule"designed in order to stabilize the economy near to an imaginary "natural" trend. Keynesian uncertaintyrather suggests a gradual and pragmatic approach to macroeconomic policy. From this perspective, weshow that the European Monetary Union could take advantage of the complementarity between thecommon monetary policy and the national budgetary and fiscal instruments.