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Monetary and fiscal interactions in open economies Author info | Abstract | Publisher info | Download info | Related research | Statistics Giovanni Lombardo () (Deutsche Bundesbank, Postfach 100602, D-60006 Frankfurt am Main, Germany. )
Alan Sutherland () (Department of Economics, University of St Andrews, St Andrews, Fife, KY16 9AL, UK. )
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A two-country sticky-price model is used to analyse the interactions between fiscal and monetary policy. The role of an ‘activist’ fiscal policy as a stabilisation tool is considered and a measure of the welfare gains from international fiscal policy cooperation is derived. It is found that welfare gains from fiscal cooperation do exist provided monetary policy is set cooperatively. There are also welfare gains from fiscal policy cooperation in a monetary union. However, it is found that a ‘non-activist’ fiscal policy can be better than non-cooperative fiscal policy when the international correlation of shocks is strongly negative. And non-cooperative fiscal policy can be better than cooperative fiscal policy if monetary policy is not set cooperatively. JEL Classification: E52; E58; F42.
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Date of creation: Nov 2003Date of revision:
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Keywords: Fiscal and monetary policy ; policy coordination. ; Other versions of this item:
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