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Monetary and Fiscal Policy in a Large Asymmetric Monetary Union - A Dynamic Three-Country Analysis

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  • Clausen, Volker
  • Wohltmann, Hans-Werner

Abstract

This paper analyzes the dynamic effects of anticipated monetary and fis- cal policies in a large monetary union, which is characterized by asym- metric interest rate transmission. We explicitly solve the asymmetric three-country model using the decomposition methods of Aoki (1981) and Fukuda (1993). Anticipated monetary and fiscal expansions lead to negative international spillovers and to intertemporal reversals in the re- lative effectiveness of policy on member country outputs. Intertemporal international coordination of monetary policies between Euroland and the US is able to stabilize the output adjustment processes induced by an anticipated unilateral fiscal expansion. --

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Bibliographic Info

Paper provided by Christian-Albrechts-University of Kiel, Department of Economics in its series Economics Working Papers with number 2005,18.

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Date of creation: 2005
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Handle: RePEc:zbw:cauewp:3835

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

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References

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  1. Volker Clausen & Hans-Werner Wohltmann, 2002. "Monetary and Fiscal Policy Dynamics in an Asymmetric Monetary Union," Macroeconomics, EconWPA 0201001, EconWPA.
  2. Buiter, Willem H. & Miller, Marcus, 1982. "Real exchange rate overshooting and the output cost of bringing down inflation," European Economic Review, Elsevier, Elsevier, vol. 18(1), pages 85-123.
  3. Stephen G. Cecchetti, 1999. "Legal structure, financial structure, and the monetary policy transmission mechanism," Economic Policy Review, Federal Reserve Bank of New York, Federal Reserve Bank of New York, issue Jul, pages 9-28.
  4. Stephen J. Turnovsky, 1985. "Monetary and Fiscal Policy Under Perfect Foresight: A Symmetric Two Country Analysis," NBER Working Papers 1699, National Bureau of Economic Research, Inc.
  5. Fukuda, Shin-ichi & Hoshi, Takeo & Ito, Takatoshi & Rose, Andrew, 2006. "International Finance," Journal of the Japanese and International Economies, Elsevier, vol. 20(4), pages 455-458, December.
  6. Stephen J. Turnovsky, 2000. "Methods of Macroeconomic Dynamics, 2nd Edition," MIT Press Books, The MIT Press, The MIT Press, edition 2, volume 1, number 0262201232, December.
  7. Wohltmann, Hans-Werner & Clausen, Volker, 2002. "Foreign price shocks and monetary policy in an asymmetric monetary union," IBES Diskussionsbeiträge 124, University of Duisburg-Essen, Faculty for Economics and Business Administration.
  8. Fukuda, Shin-ichi, 1993. "International transmission of monetary and fiscal policy : A symmetric N-country analysis with union," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 17(4), pages 589-620, July.
  9. Hans-Werner Wohltmann & Volker Clausen, 2002. "Dynamische Effekte symmetrischer Nachfrage- und Angebotspolitiken in einer asymmetrischen Währungsunion," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 222(2), pages 230-257.
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Cited by:
  1. Hefeker, Carsten, 2003. "Fiscal Reform and Monetary Union in West Africa," HWWA Discussion Papers 224, Hamburg Institute of International Economics (HWWA).

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