Optimal Monetary and Fiscal Policy in the EMU: Does Fiscal Policy Coordination matter?
AbstractI develop and analyze a DSGE model of a currency union to revise the question of how to conduct monetary and fiscal policy in countries that share the same currency. In contrast with the previous literature which assumes coordination, this paper analyzes the case where coordination lacks among fiscal authorities as well as between fiscal and monetary authorities. I show that the normative prescriptions emphasized by former analyses are not valid any more once policymakers are not coordinated. Indeed, in that case the common central bank does not stabilize the average union in ation as if it were in a closed economy because it has to take into account the distortions caused by the lack of coordination among fiscal policymakers. At the same time, if there is not a common agreement to coordinate fiscal policies, autonomous governments should use government expenditure as a stabilization tool even if shocks are symmetric.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Center for Fiscal Policy, Swiss Federal Institute of Technology Lausanne in its series Working Papers with number 200904.
Length: 45 pages
Date of creation: Aug 2006
Date of revision: May 2009
Contact details of provider:
Postal: EPFL - CDM - SFI - CFI, Odyssea, Station 5, CH-1015 Lausanne
Phone: +41 21 693 00 77
Fax: +41 21 693 00 60
Web page: http://cfi.epfl.ch/
More information through EDIRC
Monetary and Fiscal Policy; Policy Coordination;
Find related papers by JEL classification:
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- 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
- F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-10-24 (All new papers)
- NEP-CBA-2009-10-24 (Central Banking)
- NEP-EEC-2009-10-24 (European Economics)
- NEP-MAC-2009-10-24 (Macroeconomics)
- NEP-MON-2009-10-24 (Monetary Economics)
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Tomasz Michalak & Jacob Engwerda & Joseph Plasmans, 2009. "Strategic Interactions between Fiscal and Monetary Authorities in a Multi-Country New-Keynesian Model of a Monetary Union," CESifo Working Paper Series 2534, CESifo Group Munich.
- Treu, Johannes, 2011. "Politökonomische Modellierung eines Abstimmungsprozesses zwischen der Europäischen Zentralbank und den Mitgliedstaaten der Eurozone in Zeiten hoher Staatsverschuldung," Wirtschaftswissenschaftliche Diskussionspapiere 05/2011, Ernst Moritz Arndt University of Greifswald, Faculty of Law and Economics.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Corinne Dubois).
If references are entirely missing, you can add them using this form.