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Optimal monetary and fiscal policy in a currency union

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Author Info
Gali­, Jordi
Monacelli, Tommaso
Abstract

We lay out a tractable model for the analysis of optimal monetary and fiscal policy in a currency union. The monetary authority sets a common interest rate for the union, whereas fiscal policy is implemented at the country level, through the choice of government spending. In the presence of country-specific shocks and nominal rigidities, the policy mix that is optimal from the viewpoint of the union as a whole requires that inflation be stabilized at the union level by the common central bank, whereas fiscal policy has a country-specific stabilization role, one beyond the efficient provision of public goods.

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Publisher Info
Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 76 (2008)
Issue (Month): 1 (September)
Pages: 116-132
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Handle: RePEc:eee:inecon:v:76:y:2008:i:1:p:116-132

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Web page: http://www.elsevier.com/locate/inca/505552

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  2. Stéphane Auray & Aurélien Eyquem & Jean-Christophe Poutineau, 2008. "The Welfare Gains of Trade Integration in the European Monetary Union," Cahiers de recherche 08-10, Departement d'Economique de la Faculte d'administration à l'Universite de Sherbrooke. [Downloadable!]
  3. Michael Kumhof & Douglas Laxton, 2009. "Simple, Implementable Fiscal Policy Rules," IMF Working Papers 09/76, International Monetary Fund. [Downloadable!]
  4. Massimiliano Serati, 2008. "Trade and quality: theoretical and empirical evidence for the euro zone," LIUC Papers in Economics 206, Cattaneo University (LIUC). [Downloadable!]
  5. Marcelo Sánchez, 2008. "Monetary stabilisation in a currency union of small open economies," Working Paper Series 927, European Central Bank. [Downloadable!]
  6. António Afonso & Ricardo M. Sousa, 2008. "The Macroeconomic Effects of Fiscal Policy," Working Papers 2008/56, Department of Economics at the School of Economics and Management (ISEG), Technical University of Lisbon.. [Downloadable!]
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  7. Lipinska, Anna, 2008. "The Maastricht Criteria and Optimal Monetary and Fiscal Policy Mix for the EMU Accession Countries," MPRA Paper 16376, University Library of Munich, Germany. [Downloadable!]
  8. Herings P. Jean-Jacques & Peeters Ronald & Yang Michael S., 2009. "Piracy on the internet: Accommodate it or fight it? A dynamic approach," Research Memoranda 034, Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization. [Downloadable!]
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