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Monetary and Fiscal Policy Interaction in the Euro Area with different assumptions on the Phillips curve

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Author Info
Peter Bofinger ()
Eric Mayer
Abstract

In this paper we carry over a static version of a New Keynesian Macro Model to a monetary union. For a similar approach see Uhlig (2002). We will show in particular that a harmonious functioning of a monetary union critically depends on the correlation structure of shocks that hit the currency area. Additionally a high degree of integration in product markets is advantageous for the ECB as it prevents that national real interest rates can drive a wedge between macrooeconomic outcomes across member states. In particular small countries are in a vulnerable and therefore in need for fiscal policy as an independent stabilization agent with room to breath.

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Paper provided by cege – Center for European, Governance and Economic Development Research, University of Goettingen (Germany). in its series cege – Center for European, Governance and Economic Development Research Discussion Papers with number 27.

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Length: 46
Date of creation: 09 Jun 2004
Date of revision:
Handle: RePEc:got:cegedp:27

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Web page: http://www.cege.uni-goettingen.de
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Related research
Keywords: Monetary policy; inflation targeting; fiscal policy; policy coordination; free-riding;

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Find related papers by JEL classification:
E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General

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  1. Jordi GalÌ & Roberto Perotti, 2003. "Fiscal policy and monetary integration in Europe," Economic Policy, CEPR, CES, MSH, vol. 18(37), pages 533-572, October. [Downloadable!] (restricted)
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  2. Jürgen von Hagen & Susanne Mundschenk, 2002. "Fiscal and Monetary Policy Coordination in EMU," Working Papers 70, Oesterreichische Nationalbank (Austrian Central Bank). [Downloadable!]
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  3. Leitemo, Kai, 2004. "A game between the fiscal and the monetary authorities under inflation targeting," European Journal of Political Economy, Elsevier, vol. 20(3), pages 709-724, September. [Downloadable!] (restricted)
  4. Dixit, Avinash & Lambertini, Luisa, 2001. "Monetary-fiscal policy interactions and commitment versus discretion in a monetary union," European Economic Review, Elsevier, vol. 45(4-6), pages 977-987, May. [Downloadable!] (restricted)
  5. Demertzis, Maria & Hughes Hallett, Andrew & Viegi, Nicola, 2004. "An independent central bank faced with elected governments," European Journal of Political Economy, Elsevier, vol. 20(4), pages 907-922, November. [Downloadable!] (restricted)
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  6. Francesco Paolo Mongelli, 2002. "'New' views on the optimum currency area theory: what is EMU telling us?," Working Paper Series 138, European Central Bank. [Downloadable!]
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  7. Anton Muscatelli & Patrizio Tirelli & Carmine Trecroci, 2001. "Monetary and Fiscal Policy Interactions over the Cycle: Some Empirical Evidence," Working Papers 2002_13, Department of Economics, University of Glasgow, revised Oct 2002. [Downloadable!]
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  8. Canova, Fabio & Pappa, Evi, 2003. "Price Dispersions in Monetary Unions: The Role of Fiscal Shocks," CEPR Discussion Papers 3746, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  9. Svensson, Lars E. O., 1999. "Inflation targeting as a monetary policy rule," Journal of Monetary Economics, Elsevier, vol. 43(3), pages 607-654, June. [Downloadable!] (restricted)
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  10. Beetsma, Roel & Jensen, Henrik, 2002. "Monetary and Fiscal Policy Interactions in a Micro-Funded Model of a Monetary Union," CEPR Discussion Papers 3591, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  11. Dornbusch, Rudi, 1997. "Fiscal Aspects of Monetary Integration," American Economic Review, American Economic Association, vol. 87(2), pages 221-23, May. [Downloadable!] (restricted)
  12. V. V. Chari & Patrick J. Kehoe, 1998. "On the need for fiscal constraints in a monetary union," Working Papers 589, Federal Reserve Bank of Minneapolis.
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  13. Dixit, Avinash & Lambertini, Luisa, 2003. "Symbiosis of monetary and fiscal policies in a monetary union," Journal of International Economics, Elsevier, vol. 60(2), pages 235-247, August. [Downloadable!] (restricted)
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