Insulation impossible: monetary policy and regional fiscal spillovers in a federation
AbstractThis paper studies the effects of monetary policy rules in a fiscal federation, such as the European Union. The focus of the analysis is the interaction between the fiscal policy of member countries (regions) and the monetary authority. Each of the countries structures its fiscal policy (spending and taxes) with the interests of its citizens in mind. Ricardian equivalence does not hold due to the presence of monetary frictions, modeled here as reserve requirements. When capital markets are integrated, the fiscal policy of one country influences equilibrium wages and interest rates. Under certain rules, monetary policy may respond to the price variations induced by regional fiscal policies. Depending on the type of rule it adopts, interventions by the monetary authority affect the magnitude and nature of the spillover from regional fiscal policy.
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Bibliographic InfoPaper provided by Banque de France in its series Working papers with number 293.
Length: 23 pages
Date of creation: 2010
Date of revision:
Monetary Union; Inflation tax; Seigniorage; monetary rules; public debt.;
Other versions of this item:
- Cooper, Russell & Kempf, Hubert & Peled, Dan, . "Insulation Impossible: Monetary Policy and Regional Fiscal Spillovers in a Federation," Working Papers WP2010/5, University of Haifa, Department of Economics, revised 07 Sep 2010.
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-10-23 (All new papers)
- NEP-CBA-2010-10-23 (Central Banking)
- NEP-MAC-2010-10-23 (Macroeconomics)
- NEP-MON-2010-10-23 (Monetary Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Askenazy, P. & Breda, T. & Irac, D., 2010. "Innovation and Advertising: Theory and Evidence," Working papers 284, Banque de France.
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