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The Welfare Cost of Structural Distortions and Stochastic Shocks

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  • P.A.D. Cavelaars

Abstract

This paper develops a monetary-fiscal game which stresses the importance of international spillovers and introduces a double (monetaryand fiscal) cred- ibilityproblem. Models that neglect the inability of fiscal policymakers to commit will tend to underestimate the welfare cost of structural distortions. Due to international spillovers, stochastic shocks maybe relativelycostlyin welfare terms, despite the contribution of policysurprises to finance such shocks.

Suggested Citation

  • P.A.D. Cavelaars, 2003. "The Welfare Cost of Structural Distortions and Stochastic Shocks," DNB Staff Reports (discontinued) 84, Netherlands Central Bank.
  • Handle: RePEc:dnb:staffs:84
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    File URL: https://www.dnb.nl/binaries/sr084_tcm46-146861.pdf
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    References listed on IDEAS

    as
    1. Beetsma, Roel M. W. J. & Bovenberg, A. Lans, 1999. "Does monetary unification lead to excessive debt accumulation?," Journal of Public Economics, Elsevier, vol. 74(3), pages 299-325, December.
    2. Martin, Philippe, 1998. "The Exchange Rate Policy of the Euro: A Matter of Size?," Journal of the Japanese and International Economies, Elsevier, vol. 12(4), pages 455-482, December.
    3. Tamim Bayoumi & Barry Eichengreen, 1992. "Shocking Aspects of European Monetary Unification," NBER Working Papers 3949, National Bureau of Economic Research, Inc.
    4. Alesina, Alberto & Tabellini, Guido, 1987. "Rules and Discretion with Noncoordinated Monetary and Fiscal Policies," Economic Inquiry, Western Economic Association International, vol. 25(4), pages 619-630, October.
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    Keywords

    commitment; spillovers; welfare analysis.;

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