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Macroeconomic stabilization in a heterogeneous monetary union: some insights into the effects of fiscal policy coordination


  • Cornel Oros

    () (Université de Poitiers)


This paper studies the effects the fiscal coordination can have in terms of macroeconomic stabilization in a monetary Union which is heterogeneous at the level of the mechanisms of monetary policy transmission. We will use a static Keynesian model in a closed monetary Union and will prove that the stabilization effectiveness depends mainly on the type and origin of the economic shocks affecting the Union members (demand or supply shocks, domestic or foreign shocks) and on the extent of the Union's structural heterogeneity. In the case of the demand shocks, the fiscal policy coordination proves to be an optimal shock absorber only for the countries to which these shocks are specific. In the case of the supply shocks, it can represent an efficient instrument of stabilization especially if the Union''s structural heterogeneity is weak.

Suggested Citation

  • Cornel Oros, 2008. "Macroeconomic stabilization in a heterogeneous monetary union: some insights into the effects of fiscal policy coordination," Economics Bulletin, AccessEcon, vol. 5(34), pages 1-12.
  • Handle: RePEc:ebl:ecbull:eb-08e60015

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    References listed on IDEAS

    1. Roel M. W. J. Beetsma & Xavier Debrun & Franc Klaassen, 2001. "Is Fiscal Policy Coordination in EMU Desirable?," IMF Working Papers 01/178, International Monetary Fund.
    2. Marco Catenaro & Patrizio Tirelli, 1999. "Reconsidering The Pros and Cons of Fiscal Policy Coordination in a Monetary Union: Should We Set Public Expenditure Targets?," Working Papers 30, University of Milano-Bicocca, Department of Economics, revised Sep 2000.
    3. Peter van Els & Alberto Locarno & Julian Morgan & Jean-Pierre Villetelle, 2001. "Monetary policy transmission in the euro area: what do aggregate and national structural models tell us?," Temi di discussione (Economic working papers) 433, Bank of Italy, Economic Research and International Relations Area.
    4. Patrick Villieu, 2000. "Élargissement de l'Union monétaire et coordination des politiques budgétaires : un point de vue," Annals of Economics and Statistics, GENES, issue 59, pages 137-163.
    5. Jürgen von Hagen & Susanne Mundschenk, 2003. "Fiscal and monetary policy coordination in EMU," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 8(4), pages 279-295.
    6. Bas van Aarle & Jacob Engwerda & Joseph Plasmans, 2002. "Monetary and Fiscal Policy Interaction in the EMU: A Dynamic Game Approach," Annals of Operations Research, Springer, vol. 109(1), pages 229-264, January.
    7. Jérôme Creel, 2002. "Asymétries budgétaires dans la zone euro, un essai de modélisation du Pacte de stabilité," Revue Française d'Économie, Programme National Persée, vol. 16(3), pages 91-127.
    8. L. Lambertini & R. Rovelli, 2003. "Monetary and fiscal policy coordination and macroeconomic stabilization. A theoretical analysis," Working Papers 464, Dipartimento Scienze Economiche, Universita' di Bologna.
    9. repec:adr:anecst:y:2000:i:59:p:06 is not listed on IDEAS
    10. Mojon, Benoît & Peersman, Gert, 2001. "A VAR description of the effects of monetary policy in the individual countries of the euro area," Working Paper Series 0092, European Central Bank.
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    Cited by:

    1. Oros, Cornel & Zimmer, Blandine, 2015. "Uncertainty and fiscal policy in a monetary union: Why does monetary policy transmission matter?," Economic Modelling, Elsevier, vol. 50(C), pages 85-93.
    2. Cornel Oros, 2009. "Economic Governance in an Asymmetric Monetary Union: A Fiscal Policy Game Analysis," European Research Studies Journal, European Research Studies Journal, vol. 0(3), pages 39-60.

    More about this item

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit


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