Horatiu Dan

The paper aims at identifying and describing potential ways in which cultural elements are influencing fiscal behaviour within the European Union, in an attempt to find some of the structural causes underlying the fiscal issues that Member States are confronting. In a European economic environment characterized by highly heterogeneous fiscal behaviours on a national level, doubled by the membership (present or aimed) in the monetary union, understanding why Member States tend to adopt certain fiscal approaches (which sometimes are inconsistent with the Maastricht Criteria) represents a key requirement for the efficient continuation of the European economic integration process. By matching fiscal behaviour exhibited at both government and private sector levels with a set of national cultural dimensions, the study analyses the cultural / fiscal relationship, understanding its role in improving the European economic context by fostering a stronger European cultural identity that may lead to a more fiscally integrated EU.

In the context of the European Monetary Union, the efficient functioning of the EU labour market is a key factor to the Union’s economic health. Consequently, after bringing relevant arguments that support the absence of such an efficient labour market and the presence of economically inefficient intra-EU migration patterns, the paper proceeds in investigating the potential cultural elements that constitute obstacles to labour market efficiency by looking at how differences exhibited along several cultural dimensions affect both the decision whether or not to emigrate and the emigration destination.

This paper reviews and analyzes the effects that external (or exogenous) factors, defined as economic factors that cannot be controlled or influenced by the central bank, have on monetary policy and the monetary policy transmission mechanism. Adopting a theoretical research position, we aim at identifying the main external factors to monetary policy and discuss the ways in which these factors alter the economic environment and implicitly the monetary policy transmission mechanism. This is done by changing the way in which monetary transmission channels work and deliver monetary policy decisions throughout the economy, with the final goal of producing central bank desired outcomes with regard to economic variables like inflation, employment, or the production level. We will begin this article with a brief introduction on the topic of monetary policy, the monetary policy transmission mechanism and the potential external factors that may influence the monetary policy and the functioning of its transmission mechanism. The main external factors are identified as linked to fiscal policy, commodity prices, financial market volatility or other globalization related processes. After this introduction, we will proceed with the analysis of the nature and influences of each of the above mentioned external factors on monetary policy and its transmission, indentifying the potential ways in which they can change the structure and internal processes of the transmission channels. As we will see in the study and highlight in our conclusion, the external factors cause decisive changes in the way monetary policy is transmitted, and thus will strongly influence the decisions that central banks take in order to alter key economic variables. The profound understanding of how these non-central bank controlled factors influence the monetary policy transmission mechanism is a key requirement for central banks, as only by being able to predict, recognize and evaluate the effects of current or future external factors can they succeed in reaching their monetary policy objectives.

This paper addresses the subject of the monetary policy transmission mechanism by focusing on the asset price channel, which is the monetary transmission channel responsible for the propagation of the effects induced by the monetary policy decisions made by the central bank that affect the price of assets. We will analyze the asset price channel by taking a close look at its structure, internal processes and the way it delivers monetary policy throughout the economy, ultimately influencing key variables such as the unemployment rate and the levels of consumption and production. After an introduction dealing with the entire monetary transmission mechanism, its role and purposes, we will focus on the particularities of the asset price channel and the two main ways in which it delivers monetary policy decision effects: through changes in Tobin’s q value, which is the ratio between the market value of a given company and its replacement cost of capital, and through the effect of wealth, both of financial and housing nature, on consumption. In our study, we will consider theoretical aspects and observations, but also empirical evidence that highlights that the exact way in which the asset price channel functions may differ from one economy to another due to differences in the structures of the respective economies and differences in psychology and cultural values of consumers. The deep understanding of the asset price transmission channel is very important for any central bank, as this is the channel that governs key aspects of monetary policy transmission linked to the market value of assets and individual wealth. These values have, as we will see in more detail throughout the paper, an important impact on both consumption and investment, two economic actions that can help the economy, but can also prove to be a crucial element in starting and perpetuating an economic crisis.