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The Welfare Cost of Structural Distortions and Stochastic Shocks

Listed author(s):
  • P.A.D. Cavelaars
Registered author(s):

    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.

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    File URL: https://www.dnb.nl/binaries/sr084_tcm46-146861.pdf
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    Paper provided by Netherlands Central Bank in its series DNB Staff Reports (discontinued) with number 84.

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    Length: 32 pages
    Date of creation: 2003
    Handle: RePEc:dnb:staffs:84
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    Web page: http://www.dnb.nl/en/

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    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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