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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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    Cited by:

    1. Helge Berger & Giovanni Dell’Ariccia & Maurice Obstfeld, 2019. "Revisiting the Economic Case for Fiscal Union in the Euro Area," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 67(3), pages 657-683, September.
    2. Victor Echevarria Icaza & Simón Sosvilla-Rivero, 2017. "Yields on sovereign debt, fragmentation and monetary policy transmission in the euro area: A GVAR approach," Working Papers 17-01, Asociación Española de Economía y Finanzas Internacionales.
    3. Jarociński, Marek & Maćkowiak, Bartosz, 2017. "Monetary-fiscal interactions and the euro area’s vulnerability," Research Bulletin, European Central Bank, vol. 36.
    4. Atanas Pekanov, 2018. "The New View on Fiscal Policy and its Implications for the European Monetary Union," WIFO Working Papers 562, WIFO.
    5. Jarociński, Marek & Maćkowiak, Bartosz, 2018. "Monetary-fiscal interactions and the euro area's malaise," Journal of International Economics, Elsevier, vol. 112(C), pages 251-266.
    6. Caruso, Alberto & Reichlin, Lucrezia & Ricco, Giovanni, 2019. "Financial and fiscal interaction in the Euro Area crisis: This time was different," European Economic Review, Elsevier, vol. 119(C), pages 333-355.
    7. Francesco Spadafora, 2019. "European integration in the time of mistrust," Questioni di Economia e Finanza (Occasional Papers) 512, Bank of Italy, Economic Research and International Relations Area.
    8. Baumann, Ursel & Lodge, David & Miescu, Mirela S., 2019. "Global growth on life support? The contributions of fiscal and monetary policy since the global financial crisis," Working Paper Series 2248, European Central Bank.
    9. Zareh Asatryan & Xavier Debrun & Annika Havlik & Friedrich Heinemann & Martin G. Kocher & Roberto Tamborini, 2018. "Which Role for a European Minister of Economy and Finance in a European Fiscal Union?," EconPol Policy Reports 6, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    10. Athanasios Orphanides, 2017. "The Fiscal-Monetary Policy Mix in the Euro Area: Challenges at the Zero Lower Bound," European Economy - Discussion Papers 2015 - 060, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.

    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;

    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
    • 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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