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Coordination Of Fiscal Policies In A Monetary Union

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  • Carmen Díaz-Roldán

    (Universidad Pública de Navarra)

Abstract

This paper examines how the member countries of a monetary union react to country-specific shocks and to shocks from the rest of the world, when the budget deficit is the only policy instrument available. We develop a three-country model in which countries show different preferences regarding objectives, and face asymmetric disturbances. Two of the countries form a monetary union where an independent central bank controls monetary policy, and fiscal policy is determined by fiscal authorities at the national level. In this framework, we analyze in strategic terms how authorities can deal with monetary, real and supply shocks using fiscal policy with stabilizing purposes. Finally, we discuss the welfare aspects of the optimal solution and extent to which a coordinate fiscal policy may influence the performance and evolution of the monetary union.

Suggested Citation

  • Carmen Díaz-Roldán, 2000. "Coordination Of Fiscal Policies In A Monetary Union," Working Papers 00-09, Asociación Española de Economía y Finanzas Internacionales.
    • Handle: RePEc:aee:wpaper:0009
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    References listed on IDEAS

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    1. Tabellini, Guido, 1990. "Domestic politics and the international coordination of fiscal policies," Journal of International Economics, Elsevier, vol. 28(3-4), pages 245-265, May.
    2. Carmen Díaz-Roldan, 2004. "International monetary policy coordination under asymmetric shocks," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 10(1), pages 72-82, February.
    3. Turnovsky, Stephen J., 1988. "The gains from fiscal cooperation in the two-commodity real trade model," Journal of International Economics, Elsevier, vol. 25(1-2), pages 111-127, August.
    4. van Aarle, Bas & Huart, Florence, 1999. "Monetary and fiscal unification in the EU: a stylized analysis," Journal of Economics and Business, Elsevier, vol. 51(1), pages 49-66, January.
    5. Tamim Bayoumi & Barry Eichengreen, 1992. "Shocking Aspects of European Monetary Unification," NBER Working Papers 3949, National Bureau of Economic Research, Inc.
    6. Dixon, Huw David & Santoni, Michele, 1997. "Fiscal Policy Coordination with Demand Spillovers and Unionised Labour Markets," Economic Journal, Royal Economic Society, vol. 107(441), pages 403-417, March.
    7. Kehoe, Patrick J., 1987. "Coordination of fiscal policies in a world economy," Journal of Monetary Economics, Elsevier, vol. 19(3), pages 349-376, May.
    8. Barry Eichengreen & Charles Wyplosz, 1998. "The Stability Pact: more than a minor nuisance?," Economic Policy, CEPR;CES;MSH, vol. 13(26), pages 65-113, April.
    9. Joseph Daniels & David VanHoose, 1998. "Two-Country Models of Monetary and Fiscal Policy: What Have We Learned? What More Can We Learn?," Open Economies Review, Springer, vol. 9(3), pages 265-284, July.
    10. Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780199279173.
    11. Maurice Obstfeld & Giovanni Peri, 1998. "Regional non-adjustment and fiscal policy," Economic Policy, CEPR;CES;MSH, vol. 13(26), pages 205-259, April.
    12. Buiter, Willem H. & Corsetti, Giancarlo & Roubini, Nouriel, 1992. "`Excessive Deficits': Sense and Nonsense in the Treaty of Maastricht," CEPR Discussion Papers 750, C.E.P.R. Discussion Papers.
    13. Nickell, Stephen J, 1990. "Unemployment: A Survey," Economic Journal, Royal Economic Society, vol. 100(401), pages 391-439, June.
    14. Carmen Díaz-Roldán, "undated". "Coordination of Fiscal Policies in a Monetary Union," Working Papers on International Economics and Finance 00-09, FEDEA.
    15. Driver, Rebecca L & Wren-Lewis, Simon, 1999. "European Monetary Union and Asymmetric Shocks in a New Keynesian Model," Oxford Economic Papers, Oxford University Press, vol. 51(4), pages 665-688, October.
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    Cited by:

    1. Carmen Díaz-Roldán, "undated". "Coordination of Fiscal Policies in a Monetary Union," Working Papers on International Economics and Finance 00-09, FEDEA.
    2. Mª Carmen Díaz Roldán, 2002. "On the Desirability of Supply-Side Intervention in a Monetary Union," Economic Working Papers at Centro de Estudios Andaluces E2002/21, Centro de Estudios Andaluces.
    3. Carmen Díaz - Roldan, 2003. "Supply-policy coordination in a monetary union," Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, vol. 18(2), pages 163-179.
    4. Luca Onorante, 2006. "Interaction of Fiscal Policies on the Euro Area: How Much Pressure on the ECB?," Economics Working Papers ECO2006/9, European University Institute.

    More about this item

    Keywords

    Monetary union; fiscal policy; policy coordination;

    JEL classification:

    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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