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Price Level Determination In A Heterogeneous Monetary Union

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  • Paul R. Bergin

Abstract

A monetary union requires that a common central bank be shared among multiple nations, where governments and households may well be heterogeneous across national borders. A dynamic stochastic general equilibrium model of a two-country monetary union provides a natural setting in which to examine the implications of agent heterogeneity in government fiscal policies can be accommodated within a monetary union. Second, household heterogeneity gives monetary policy a reallocative dimension which affects price-level determination. For example, dissimilar preferences for holding money tend to enhance the potency of a monetary contraction to lower inflation. Fiscal federalism may reverse this effect.

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  • Paul R. Bergin, "undated". "Price Level Determination In A Heterogeneous Monetary Union," Department of Economics 97-12, California Davis - Department of Economics.
    • Handle: RePEc:fth:caldec:97-12
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    File URL: http://www.econ.ucdavis.edu/working_papers/97-12.pdf
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    Cited by:

    1. Woodford, Michael, 2001. "Fiscal Requirements for Price Stability," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 33(3), pages 669-728, August.

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