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Monetary and Fiscal Policy Dynamics in an Asymmetric Monetary Union

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  • Volker Clausen

    (University of Essen)

  • Hans-Werner Wohltmann

    (University of Kiel)

Abstract

This paper investigates the dynamic effects of monetary and fiscal policy in a monetary union, which is characterized by asymmetric interest rate transmission. This asymmetry gives rise to intertemporal reversals in the relative effectiveness of policy on member country outputs. The direction and the number of these reversals depend on whether policies are unanticipated or anticipated. We also study the coordination between monetary and fiscal policy in a monetary union. Monetary policy may completely stabilize European output after unanticipated fiscal policy shocks. With anticipated fiscal policy shocks, complete stabilization throughout the overall adjustment process requires monetary policy to be time-inconsistent.

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Bibliographic Info

Paper provided by EconWPA in its series Macroeconomics with number 0201001.

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Date of creation: 09 Jan 2002
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Handle: RePEc:wpa:wuwpma:0201001

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Web page: http://128.118.178.162

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Keywords: European Monetary Union; Fiscal Policy; Monetary Policy; Policy Coordination;

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References

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  1. Robert J. Barro & David B. Gordon, 1983. "Rules, Discretion and Reputation in a Model of Monetary Policy," NBER Working Papers 1079, National Bureau of Economic Research, Inc.
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  14. Hans-Werner Wohltmann & Frank Bulthaupt, 1999. "Intertemporale Output- und Beschäftigungseffekte angebotsorientierter Politikmaßnahmen in einer Währungsunion," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 218(1+2), pages 1-22, January.
  15. Clausen, Volker & Wohltmann, Hans-Werner, 2002. "Monetary and fiscal policy dynamics in an asymmetric monetary union," IBES Diskussionsbeiträge 119, University of Duisburg-Essen, Faculty for Economics and Business Administration.
  16. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
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Citations

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Cited by:
  1. Ernst Juerg Weber, 2004. "Monetary Policy in a Heterogeneous Monetary Union: The Australian Experience," Economics Discussion / Working Papers 04-08, The University of Western Australia, Department of Economics.
  2. Volker Clausen & Bernd Hayo, 2006. "Asymmetric monetary policy effects in EMU," Applied Economics, Taylor & Francis Journals, vol. 38(10), pages 1123-1134.
  3. Volker Clausen & Bernd Hayo, 2002. "Makroökonomische Implikationen der Mitgliedschaft Deutschlands in der Europäischen Währungsunion," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 71(3), pages 339-353.
  4. Greß, Stefan, 2004. "Competition in Social Health Insurance: A Three-Country Comparison," IBES Diskussionsbeiträge 135, University of Duisburg-Essen, Faculty for Economics and Business Administration.
  5. Clausen, Volker & Wohltmann, Hans-Werner, 2005. "Monetary and fiscal policy dynamics in an asymmetric monetary union," Journal of International Money and Finance, Elsevier, vol. 24(1), pages 139-167, February.
  6. Claudia M. Buch, 2001. "Financial Market Integration in a Monetary Union," Kiel Working Papers 1062, Kiel Institute for the World Economy.
  7. Wohltmann, Hans-Werner & Winkler, Roland C., 2005. "Monetary Policy Dynamics in Large Oil-Dependent Economies," Economics Working Papers 2005,17, Christian-Albrechts-University of Kiel, Department of Economics.
  8. Wohltmann, Hans-Werner, 2005. "Dynamische Effekte der Geld-und Fiskalpolitik in einem asymmetrischen Drei-Länder-Modell mit einer Währungsunion," Economics Working Papers 2005,19, Christian-Albrechts-University of Kiel, Department of Economics.
  9. René Cabral-Torres, . "Monetary and Fiscal Policy Coordination," Discussion Papers 05/28, Department of Economics, University of York.
  10. Volker Clausen & Hans-Werner Wohltmann, 2011. "Oil Price Shocks and Cyclical Dynamics in an Asymmetric Monetary Union," Ruhr Economic Papers 0247, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  11. Wohltmann, Hans-Werner & Winkler, Roland C., 2005. "Dynamic Effects of Raw Materials Price Shocks for Large Oil-Dependent Economies," Economics Working Papers 2005,01, Christian-Albrechts-University of Kiel, Department of Economics.
  12. Wohltmann, Hans-Werner & Winkler, Roland C., 2005. "Oil Price Shocks and Currency Denomination (A revised version of EWP 2005-01)," Economics Working Papers 2005,10, Christian-Albrechts-University of Kiel, Department of Economics.
  13. Willi Semmler & Wenlang Zhang, 2004. "Monetary and Fiscal Policy Interactions in the Euro Area," Empirica, Springer, vol. 31(2), pages 205-227, June.
  14. Volker Clausen & Hans-Werner Wohltmann, 2013. "Oil Price Dynamics and Monetary Policy in a Heterogeneous Monetary Union," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 233(2), pages 159-187, March.
  15. Clausen, Volker & Wohltmann, Hans-Werner, 2005. "Monetary and Fiscal Policy in a Large Asymmetric Monetary Union - A Dynamic Three-Country Analysis," Economics Working Papers 2005,18, Christian-Albrechts-University of Kiel, Department of Economics.
  16. Wohltmann, Hans-Werner & Clausen, Volker, 2003. "Oil Price Shocks and Monetary Policy in an Asymmetric Monetary Union§," Economics Working Papers 2003,11, Christian-Albrechts-University of Kiel, Department of Economics.

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