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Optimal Fiscal Policy Rules in a Monetary Union

  • Kirsanova, Tatiana
  • Satchi, Mathan
  • Vines, David
  • Wren-Lewis, Simon

This paper investigates the importance of fiscal policy in providing macroeconomic stabilisation in a monetary union. We use a microfounded New Keynesian model of a monetary union which incorporates persistence in inflation and non-Ricardian consumers, and derive optimal simple rules for fiscal authorities. We find that fiscal policy can play an important role in reacting to inflation and output, but that not much is lost if national fiscal policy is restricted to react only to national differences in inflation and output.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5533.

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Date of creation: Mar 2006
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Handle: RePEc:cpr:ceprdp:5533
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