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Monetary And Fiscal Policy Efficiency And Coordination In A Multi‐Sector Open‐Economy General Equilibrium Model

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  • Gilbert Koenig
  • Irem Zeyneloglu

Abstract

The paper analyzes monetary and fiscal stabilization and coordination in a multi‐sector stochastic new open economy macroeconomics (NOEM) model. It first aims to assess the capacity of fiscal and monetary policy to reduce or eliminate the negative welfare effects of an unanticipated productivity shock affecting some or all of the sectors in each country. Second, it evaluates the possible gains from international monetary cooperation as well as the impact of active fiscal policy on the welfare performance of monetary policy. The setup also allows for international asymmetry concerning the uncertainty over the shocks. The results show that monetary and fiscal policies are efficient tools of stabilization and under several conditions they can replicate the flexible‐price equilibrium. However, their welfare performance is not necessarily increased when both monetary and fiscal policies react to shocks at the national level. The existence of bilateral gains from monetary cooperation depends on the degree of asymmetry concerning the uncertainty over the shocks.

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  • Gilbert Koenig & Irem Zeyneloglu, 2010. "Monetary And Fiscal Policy Efficiency And Coordination In A Multi‐Sector Open‐Economy General Equilibrium Model," Scottish Journal of Political Economy, Scottish Economic Society, vol. 57(4), pages 473-492, September.
    • Handle: RePEc:bla:scotjp:v:57:y:2010:i:4:p:473-492
    DOI: 10.1111/j.1467-9485.2010.00527.x
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    References listed on IDEAS

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    4. Lombardo, Giovanni & Sutherland, Alan, 2004. "Monetary and fiscal interactions in open economies," Journal of Macroeconomics, Elsevier, vol. 26(2), pages 319-347, June.
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    6. Canzoneri, Matthew B. & Cumby, Robert E. & Diba, Behzad T., 2005. "The need for international policy coordination: what's old, what's new, what's yet to come?," Journal of International Economics, Elsevier, vol. 66(2), pages 363-384, July.
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    Cited by:

    1. İrem Zeyneloğlu & Gilbert Koenig, 2016. "Recent Economic Developments and the Implications for Fiscal Policy in Open Economy Macroeconomics," Revue d'économie politique, Dalloz, vol. 126(6), pages 1023-1056.

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