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Uncertainty and Fiscal Policy in an Asymmetric Monetary Union

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  • Carsten Hefeker

    ()

  • Blandine Zimmer

Abstract

The paper examines the monetary-fiscal interactions in a monetary union model with uncertainty due to imperfect central bank transparency. We first show that monetary uncertainty disciplines fiscal policymakers and thereby reduces taxes, average inflation and output distortions. However, as more members enter the monetary union, the fiscal disciplining effect of uncertainty is mitigated. As a consequence, monetary union enlargement may lead to a more aggressive fiscal stance in some member countries, depending on their relative economic and political weights, on their government’s spending target, and on the change in the degree of uncertainty that they experience with the enlargement.

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File URL: http://hdl.handle.net/10.1007/s11079-009-9120-1
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Bibliographic Info

Article provided by Springer in its journal Open Economies Review.

Volume (Year): 22 (2011)
Issue (Month): 1 (February)
Pages: 163-178

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Handle: RePEc:kap:openec:v:22:y:2011:i:1:p:163-178

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Web page: http://www.springerlink.com/link.asp?id=100323

Related research

Keywords: Monetary union; Fiscal policy; Transparency of monetary policy; Asymmetries; E 58; E 63; F 36;

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Citations

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Cited by:
  1. Dai, Meixing & Sidiropoulos, Moïse, 2011. "Fiscal disciplining effect of central bank opacity: Stackelberg versus Nash equilibrium," MPRA Paper 29843, University Library of Munich, Germany.
  2. Carsten Hefeker & Blandine Zimmer, 2010. "Central bank independence and conservatism under uncertainty: Substitutes or complements?," MAGKS Papers on Economics 201001, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  3. Hefeker, Carsten & Zimmer, Blandine, 2011. "The optimal choice of central bank independence and conservatism under uncertainty," Journal of Macroeconomics, Elsevier, vol. 33(4), pages 595-606.
  4. Dai, Meixing & Sidiropoulos, Moïse & Spyromitros, Eleftherios, 2010. "Fiscal policy, institutional quality and central bank transparency," MPRA Paper 23766, University Library of Munich, Germany.
  5. Meixing Dai & Moïse Sidiropoulos, 2010. "Monetary and fiscal policy interactions with central bank transparency and public investment," Working Papers of BETA 2010-21, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.

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