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Optimal Fiscal Policy Rules in a Monetary Union

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  • Kirsanova, Tatiana
  • Satchi, Mathan
  • Vines, David
  • Wren-Lewis, Simon

Abstract

This paper investigates the importance of fiscal policy in providing macroeconomic stabilisation in a monetary union. We use a microfounded New Keynesian model of a monetary union which incorporates persistence in inflation and non-Ricardian consumers, and derive optimal simple rules for fiscal authorities. We find that fiscal policy can play an important role in reacting to inflation and output, but that not much is lost if national fiscal policy is restricted to react only to national differences in inflation and output.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5533.

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Date of creation: Mar 2006
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Handle: RePEc:cpr:ceprdp:5533

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Keywords: monetary union; optimal monetary policy and fiscal policies; simple rules;

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References

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Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Annoying Anti-Stimulus Arguments: Numbers 1 and 2
    by Mainly Macro in Mainly Macro on 2012-01-29 21:26:00
  2. Why anti-stimulus arguments do not apply
    by Lars P Syll in Lars P Syll's Blog on 2012-01-30 09:36:54
  3. Some Thoughts on Fiscal Rules
    by Mainly Macro in Mainly Macro on 2012-12-09 23:41:00
  4. The UK is well ahead of the US and the EU in its use of fiscal rules
    by Managing Editor in British Politics and Policy at LSE on 2012-12-11 08:00:52
  5. The UK is well ahead of the US and the EU in its use of fiscal rules.
    by Blog Admin in EUROPP European Politics and Policy on 2012-12-15 11:00:38
  6. The optimal speed of debt correction
    by Mainly Macro in Mainly Macro on 2012-03-21 01:09:00
  7. Euro Deja Vu?
    by Mainly Macro in Mainly Macro on 2012-02-03 12:26:00
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
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Cited by:
  1. Tatiana Kirsanova & Simon Wren‐Lewis, 2012. "Optimal Fiscal Feedback on Debt in an Economy with Nominal Rigidities," Economic Journal, Royal Economic Society, vol. 122(559), pages 238-264, 03.
  2. Hohberger, Stefan & Herz, Bernhard, 2012. "Fiscal Policy, Monetary Regimes and Current Account Dynamics," Annual Conference 2012 (Goettingen): New Approaches and Challenges for the Labor Market of the 21st Century 66054, Verein für Socialpolitik / German Economic Association.
  3. Cem Cebi, 2011. "The Interaction between Monetary and Fiscal Policies in Turkey: An Estimated New Keynesian DSGE Model (Yeni Keynesyen Dinamik Stokastik Genel Denge Modeli Çerçevesinde Türkiye’de Para ve Maliye P," Working Papers 1104, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  4. Chan Wang & Heng-fu Zou, 2013. "On the efficiency of monetary and fiscal policy in open economies," Annals of Economics and Finance, Society for AEF, vol. 14(1), pages 191-217, May.
  5. 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.
  6. Andrea Ferrero, 2005. "Fiscal and monetary rules for a currency union," Working Paper Series 502, European Central Bank.
  7. Tatiana Kirsanova & David Vines & Simon Wren-Lewis, 2007. "When Inflation Persistence Really Matters: Two examples," Kiel Working Papers 1351, Kiel Institute for the World Economy.
  8. Marcelo Sánchez, 2008. "Monetary stabilisation in a currency union of small open economies," Working Paper Series 927, European Central Bank.
  9. Karlygash Kuralbayeva, 2007. "Inflation persistence: Implications for a design of monetary policy in a small open economy subject to external shocks," CEIS Research Paper 93, Tor Vergata University, CEIS.
  10. Christopher Allsopp & David Vines, 2008. "Fiscal Policy, intercountry adjustment and the real exchange rate within Europe," European Economy - Economic Papers 344, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  11. Leith, Campbell & Wren-Lewis, Simon, 2009. "When is Monetary Policy All we Need?," SIRE Discussion Papers 2009-25, Scottish Institute for Research in Economics (SIRE).
  12. Stéphane Auray & Aurélien Eyquem, 2012. "Welfare Reversal in Monetary Union," Working Papers 2012-33, Centre de Recherche en Economie et Statistique.
  13. Kirsanova, Tatiana & Vines, David & Wren-Lewis, Simon, 2006. "Fiscal Policy and Macroeconomic Stability Within a Currency Union," CEPR Discussion Papers 5584, C.E.P.R. Discussion Papers.
  14. Fabian Eser, 2009. "Optimal Fiscal Stabilisation through Government Spending," Economics Series Working Papers 2009-W14, University of Oxford, Department of Economics.

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