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Macroeconomic stabilization, monetary-fiscal interactions, and Europe's monetary union

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  • Corsetti, Giancarlo
  • Dedola, Luca
  • Jarociński, Marek
  • Maćkowiak, Bartosz
  • Schmidt, Sebastian

Abstract

The euro area recently experienced a prolonged period of weak economic activity and very low inflation. This paper reviews models of business cycle stabilization with an eye to formulating lessons for policy in the euro area. According to standard models, after a large recessionary shock accommodative monetary and fiscal policy together may be necessary to stabilize economic activity and inflation. The paper describes practical ways for the euro area to be able to implement an effective monetary-fiscal policy mix.

Suggested Citation

  • Corsetti, Giancarlo & Dedola, Luca & Jarociński, Marek & Maćkowiak, Bartosz & Schmidt, Sebastian, 2019. "Macroeconomic stabilization, monetary-fiscal interactions, and Europe's monetary union," European Journal of Political Economy, Elsevier, vol. 57(C), pages 22-33.
    • Handle: RePEc:eee:poleco:v:57:y:2019:i:c:p:22-33
    DOI: 10.1016/j.ejpoleco.2018.07.001
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    More about this item

    Keywords

    Lower bound on nominal interest rates; Self-fulfilling sovereign default; Eurobond; Government bonds; Joint analysis of fiscal and monetary policy;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • 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; Treasury Policy

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