1999 | OriginalPaper | Chapter
Small Country in Large Union
Author : Prof. Dr. Michael Carlberg
Published in: European Monetary Union
Publisher: Physica-Verlag HD
Included in: Professional Book Archive
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The basic idea of this section is as follows. Consider for instance an increase in Belgian government purchases. The primary effect is that Belgian income goes up. The secondary effect is that the euro appreciates and the world interest rate rises. The appreciation of the euro, however, falls mainly on the other countries of the union. And the rise in the world interest rate falls mainly on the rest of the world. So there is clearly a spillover to the other countries. The repercussion to Belgium, on the other hand, is very small, compared to the size of the fiscal impulse. For a more profound analysis see the small union of two countries in part two and the large union in part four.