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Optimal macroprudential and fiscal policy in a monetary union

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  • Malmierca, María

Abstract

The link between the financial system, economic activity, and fiscal sustainability is increasingly evident, making the joint study of fiscal and macroprudential measures a promising area to investigate. This paper provides a novel analysis of the coordination of optimal fiscal and macroprudential policies regarding welfare maximization through a two-country model for a monetary union. I find that the advisability to coordinate macroprudential and fiscal policy depends on the kind of shock that hits the economy. After financial shocks, macroprudential-fiscal coordination at the national level entails the greatest welfare improvements. Under supply and demand shocks, the best option regarding welfare implies macroprudential-fiscal coordination to stabilize union aggregate variables.

Suggested Citation

  • Malmierca, María, 2023. "Optimal macroprudential and fiscal policy in a monetary union," Economic Modelling, Elsevier, vol. 122(C).
  • Handle: RePEc:eee:ecmode:v:122:y:2023:i:c:s0264999323000500
    DOI: 10.1016/j.econmod.2023.106238
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    More about this item

    Keywords

    Welfare analysis; Policy coordination; Credit growth; Currency area;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • F45 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Macroeconomic Issues of Monetary Unions

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