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Insulation Impossible : Fiscal Spillovers in a Monetary Union

Author

Listed:
  • Russell Cooper

    () (University of Texas at Austin [Austin])

  • Hubert Kempf

    () (PSE - Paris School of Economics, CES - Centre d'économie de la Sorbonne - CNRS - Centre National de la Recherche Scientifique - UP1 - Université Panthéon-Sorbonne, Banque de France - Direction de la Recherche)

  • Dan Peled

    () (University of Haifa [Haifa])

Abstract

This paper studies the effects of monetary policy rules in a fiscal federation, such as the European Union. The focus of the analysis is the interaction between the fiscal policy of member countries (regions) and the monetary authority. Each of the countries structures its fiscal policy (spending and taxes) with the interests of its citizens in mind. Ricardian equivalence does not hold due to the presence of monetary frictions, modeled here as reserve requirements. When capital markets art integrated, the fiscal policy of one country influences equilibrium wages and interest rates. Under certain rules, monetary policy may respond to the price variations induced by regional fiscal policies. Depending on the type of rule it adopts, interventions by the monetary authority affect the magnitude and nature of the spillover from regional fiscal policy.

Suggested Citation

  • Russell Cooper & Hubert Kempf & Dan Peled, 2010. "Insulation Impossible : Fiscal Spillovers in a Monetary Union," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00497430, HAL.
  • Handle: RePEc:hal:cesptp:halshs-00497430
    Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00497430
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    References listed on IDEAS

    as
    1. Kehoe, Patrick J., 1987. "Coordination of fiscal policies in a world economy," Journal of Monetary Economics, Elsevier, vol. 19(3), pages 349-376, May.
    2. Cooper, Russell & Kempf, Hubert & Peled, Dan, 2010. "Regional debt in monetary unions: Is it inflationary?," European Economic Review, Elsevier, vol. 54(3), pages 345-358, April.
    3. Russell Cooper & Hubert Kempf & Dan Peled, 2008. "Is It Is Or Is It Ain'T My Obligation? Regional Debt In A Fiscal Federation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(4), pages 1469-1504, November.
    4. Chatterjee, Satyajit & Corbae, Dean, 1992. "Endogenous Market Participation and the General Equilibrium Value of Money," Journal of Political Economy, University of Chicago Press, vol. 100(3), pages 615-646, June.
    5. Carlstrom, Charles T. & Fuerst, Timothy S., 1995. "Interest rate rules vs. money growth rules a welfare comparison in a cash-in-advance economy," Journal of Monetary Economics, Elsevier, vol. 36(2), pages 247-267, November.
    6. Freeman, Scott & Haslag, Joseph H, 1996. "On the Optimality of Interest-Bearing Reserves in Economies of Overlapping Generations," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 7(3), pages 557-565, April.
    7. Smith, Bruce D, 1994. "Efficiency and Determinacy of Equilibrium under Inflation Targeting," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 4(3), pages 327-344.
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    Cited by:

    1. Konon, Alexander, 2012. "Direct and Indirect Crisis Effects on International Trade or: Is There a Chance to Employ an Income Stimulus to Stimulate Exports?," MPRA Paper 36363, University Library of Munich, Germany.
    2. Xu, Kun & Guan, Zhihua & Xu, Wenli, 2015. "省级财政支出效率空间溢出效应研究:基于超效率dea和gsm模型
      [Study on Spatial Spillover Effect of Provincial Fiscal Efficiency: Based on Super-Efficient DEA and GSM Model]
      ," MPRA Paper 71132, University Library of Munich, Germany.
    3. Mark Aguiar & Manuel Amador & Emmanuel Farhi & Gita Gopinath, 2015. "Coordination and Crisis in Monetary Unions," The Quarterly Journal of Economics, Oxford University Press, vol. 130(4), pages 1727-1779.
    4. Carmignani, Fabrizio, 2015. "The international effect of US government expenditure," Economic Modelling, Elsevier, vol. 47(C), pages 63-73.

    More about this item

    Keywords

    Monetary union; inflation tax; seigniorage; monetary rules; public debt.; Union monétaire; taxe inflationniste; seigneuriage; dette publique; règle monétaire.;

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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