Monetary and Fiscal Policy Dynamics in an Asymmetric Monetary Union

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Monetary and Fiscal Policy Dynamics in an Asymmetric Monetary Union

Author Info

Volker Clausen (University of Essen)
Hans-Werner Wohltmann (University of Kiel)

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Volker Clausen

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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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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Article
- 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. [Downloadable!] (restricted)

Find related papers by JEL classification:
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization
F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

This paper has been announced in the following NEP Reports:

NEP-ALL-2002-01-22 (All new papers)
NEP-CBA-2002-01-22 (Central Banking)
NEP-IFN-2002-01-22 (International Finance)
NEP-MAC-2002-01-05 (Macroeconomics)
NEP-MON-2002-01-22 (Monetary Economics)

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

Buiter, Willem H. & Miller, Marcus, 1982. "Real exchange rate overshooting and the output cost of bringing down inflation," European Economic Review, Elsevier, vol. 18(1), pages 85-123. [Downloadable!] (restricted)
Other versions:
- Willem H. Buiter & Marcus H. Miller, 1982. "Real Exchange Rate Overshooting and the Output Cost of Bringing Down Inflation," NBER Working Papers 0749, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
- Buiter, Willem H & Miller, Marcus, 1981. "Real Exchange Rate Overshooting and the Output Cost of Bringing Down Inflation," The Warwick Economics Research Paper Series (TWERPS) 204, University of Warwick, Department of Economics.
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- Willem H. Buiter & Marcus Miller, 1991. "Real Exchange Rate Overshooting and the Output Cost of Bringing Down Inflation," NBER Chapters, in: International Volatility and Economic Growth: The First Ten Years of The International Seminar on Macroeconomics, pages 239-277 National Bureau of Economic Research, Inc. [Downloadable!]
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Obstfeld, Maurice & Rogoff, Kenneth, 1995. "Exchange Rate Dynamics Redux," CEPR Discussion Papers 1131, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
Other versions:
- Maurice Obstfeld and Kenneth Rogoff., 1995. "Exchange Rate Dynamics Redux," Center for International and Development Economics Research (CIDER) Working Papers C95-048, University of California at Berkeley.
- Maurice Obstfeld & Kenneth Rogoff, 1996. "Exchange Rate Dynamics Redux," NBER Working Papers 4693, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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Turnovsky, Stephen J, 1986. "Monetary and Fiscal Policy under Perfect Foresight: A Symmetric Two-country Analysis," Economica, London School of Economics and Political Science, vol. 53(210), pages 139-57, May. [Downloadable!] (restricted)
Other versions:
- Stephen J. Turnovsky, 1986. "Monetary and Fiscal Policy Under Perfect Foresight: A Symmetric Two Country Analysis," NBER Working Papers 1699, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Michael Ehrmann, 2000. "Comparing monetary policy transmission across European countries," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 136(1), pages 58-83, March. [Downloadable!] (restricted)
Stephen G. Cecchetti, 1999. "Legal Structure, Financial Structure, and the Monetary Policy Transmission Mechanism," NBER Working Papers 7151, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Other versions:
- Stephen G. Cecchetti, 1999. "Legal structure, financial structure, and the monetary policy transmission mechanism," Economic Policy Review, Federal Reserve Bank of New York, issue Jul, pages 9-28. [Downloadable!]
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. [Downloadable!] (restricted)
Volker Clausen, 1998. "Money demand and monetary policy in Europe," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 134(4), pages 712-740, December. [Downloadable!] (restricted)
Willem H. Buiter, 1984. "Saddlepoint Problems in Contifuous Time Rational Expectations Models: A General Method and Some Macroeconomic Ehamples," NBER Technical Working Papers 0020, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Other versions:
- Buiter, W, 1982. "Saddlepoint Problems in Continuous Time Rational Expectations Models : A General Method and Some Macroeconomic Examples," The Warwick Economics Research Paper Series (TWERPS) 200, University of Warwick, Department of Economics.
- Buiter, Willem H, 1984. "Saddlepoint Problems in Continuous Time Rational Expectations Models: A General Method and Some Macroeconomic Examples," Econometrica, Econometric Society, vol. 52(3), pages 665-80, May. [Downloadable!] (restricted)
Laufer, Nikolaus K. A. & Sundararajan, Srinivasa, 1994. "The international transmission of economic shocks in a three-country world under mixed exchange rates," Journal of International Money and Finance, Elsevier, vol. 13(4), pages 429-446, August. [Downloadable!] (restricted)

Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

René Cabral-Torres, . "Monetary and Fiscal Policy Coordination," Discussion Papers 05/28, Department of Economics, University of York. [Downloadable!]
Ernst Juerg Weber, 2006. "Monetary policy in a heterogeneous monetary union: the Australian experience," Applied Economics, Taylor and Francis Journals, vol. 38(21), pages 2487-2495, December. [Downloadable!] (restricted)
Other versions:
- 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. [Downloadable!]
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. [Downloadable!]
Volker Clausen & Bernd Hayo, 2006. "Asymmetric monetary policy effects in EMU," Applied Economics, Taylor and Francis Journals, vol. 38(10), pages 1123-1134, June. [Downloadable!] (restricted)
Other versions:
- Bernd Hayo & Volker Clausen, 2002. "Asymmetric Monetary Policy Effects in EMU," Macroeconomics 0203003, EconWPA. [Downloadable!]
Willi Semmler & Wenlang Zhang, 2004. "Monetary and Fiscal Policy Interactions in the Euro Area," Economic Change and Restructuring, Springer, vol. 31(2), pages 205-227, June. [Downloadable!] (restricted)
Other versions:
- Willi Semmler & Wenlang Zhang, 2004. "Monetary and Fiscal Policy Interactions in the Euro Area," Empirica, Springer, vol. 31(2), pages 205-227, June. [Downloadable!] (restricted)
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. [Downloadable!]
Claudia M. Buch, 2001. "Financial Market Integration in a Monetary Union," Kiel Working Papers 1062, Kiel Institute for the World Economy. [Downloadable!]
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. [Downloadable!]
Wohltmann, Hans-Werner & Winkler, Roland, 2005. "Monetary Policy Dynamics in Large Oil-Dependent Economies," Economics Working Papers 2005,17, Christian-Albrechts-University of Kiel, Department of Economics. [Downloadable!]
Wohltmann, Hans-Werner & Winkler, Roland, 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. [Downloadable!]
Wohltmann, Hans-Werner & Winkler, Roland, 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. [Downloadable!]

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