RASTANEWS intends to enhance knowledge base, at both theoretical and an applied level, on many aspects of the future of macro-economic and monetary integration in Europe thus paving the way to a revised governance of the EMU, and the EU as a whole, in the wake of the debt crisis. We see three key issues about the working of the EU macro-economy that deserve deeper investigation. The first is the issue of incomplete and informationally inefficient financial markets, the Achille’s heel of the consensus DSGE models. The second, related issue, is the heterogeneity in expectations, which should play a fundamental role in explaining the behaviour of asset prices. The third issue is the need to overcome the traditional dichotomy between Keynesian (short run) and neoclassical (long run) policy prescriptions. Taking these issues seriously has important implications for the conduct of EU monetary and fiscal policies and for EU governance system. In addition, to facilitate the timely identification of macro risks, we propose a new system of early warning indicators, to be implemented within the EMU surveillance mechanism. This proposal is consistent with our theoretical framework and is based on an empirical macro-finance approach.
Fields of science
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