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Monetary and Fiscal Policy Interaction in the Euro Area with Different Assumptions on the Phillips Curve

  • Peter Bofinger
  • Eric Mayer

    ()

In this paper we apply a static version of a New Keynesian macromodel to a monetary union (see Bofinger et al., J Econ Educ, 37:98–117 (2006), Walsh, J Econ Educ, 33:333–346 (2002)). We show in particular that a harmonious functioning of a monetary union critically depends on the correlation of shocks that hit the currency area. Additionally a high degree of integration in product markets is advantageous for the ECB as it prevents national interest rates from driving a wedge between macroeconomic outcomes across member states. In particular small countries are in need for fiscal policy as an independent stabilization agent with room to breath. Copyright Springer Science+Business Media, LLC 2007

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File URL: http://hdl.handle.net/10.1007/s11079-007-9039-3
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Article provided by Springer in its journal Open Economies Review.

Volume (Year): 18 (2007)
Issue (Month): 3 (July)
Pages: 291-305

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Handle: RePEc:kap:openec:v:18:y:2007:i:3:p:291-305
Contact details of provider: Web page: http://www.springerlink.com/link.asp?id=100323

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  16. Bofinger, Peter & Mayer, Eric & Wollmershäuser, Timo, 2002. "The BMW model: simple macroeconomics for closed and open economies a requiem for the IS/LM-AS/AD and the Mundell-Fleming model," W.E.P. - Würzburg Economic Papers 35, University of Würzburg, Chair for Monetary Policy and International Economics.
  17. Mongelli, Francesco Paolo, 2002. "ìNew" Views on the Optimum Currency Area Theory: What is EMU Telling US?," Royal Economic Society Annual Conference 2002 140, Royal Economic Society.
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