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Monetary and budgetary-fiscal policy interactions in a Keynesian heterogeneous monetary union

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  • Angel Asensio

    (CEPN - Centre d'Economie de l'Université Paris Nord (ancienne affiliation) - UP13 - Université Paris 13 - CNRS - Centre National de la Recherche Scientifique)

Abstract

The paper studies the effects of heterogeneity upon the monetary and fiscal-budgetary policy interactions in a Keynesian monetary union. As a result of interactions, some of our results contrast sharply with the ones in studies that consider separately monetary, fiscal and budgetary policies. Other non-conventional mechanisms are identified in connection with the supply-side effects of fiscal taxes variations. As concerns policy responses to inherited unemployment, the central bank profile proves notably to be crucial in determining the magnitude of the instrument moves that are required to achieve the objectives. Simulations suggest that heterogeneity is likely to introduce more sources of non conventional effects and to enforce adverse interactions, especially in contexts of high unemployment. However, provided authorities are able to control the distributive conflict and its inflationary consequences, it is beneficial for the union that monetary policy specializes in countering the common effects of shocks, because that pushes governments to concentrate in countering the idiosyncratic effects. Employment targets require then lower instruments responses, as a result of efficiency gains.

Suggested Citation

  • Angel Asensio, 2006. "Monetary and budgetary-fiscal policy interactions in a Keynesian heterogeneous monetary union," Post-Print halshs-00120406, HAL.
    • Handle: RePEc:hal:journl:halshs-00120406
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00120406v2
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    References listed on IDEAS

    as
    1. Angel Asensio, 2006. "New-Consensus Macroeconomic Governance in a Keynesian world, and the Keynesian alternative," Post-Print halshs-00139113, HAL.
    2. Philip Arestis & Georgios Chortareas, 2006. "Monetary policy in the euro area," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 28(3), pages 371-394.
    3. Angel Asensio, 2007. "Monetary and Budgetary-Fiscal Policy Interactions in a Keynesian Context: Revisiting Macroeconomic Governance," Palgrave Macmillan Books, in: Philip Arestis & Eckhard Hein & Edwin Heron (ed.), Aspects of Modern Monetary and Macroeconomic Policies, chapter 6, pages 80-105, Palgrave Macmillan.
    4. Thomas I. Palley, 2001. "The Role of Institutions and Policies in Creating High European," Macroeconomics 0108007, University Library of Munich, Germany.
    5. Thomas I. Palley, "undated". "The Role of Institutions and Policies in Creating High European Unemployment: The Evidence," Economics Working Paper Archive wp_336, Levy Economics Institute.
    6. Angel Asensio, 2006. "New-consensus macroeconomic governance in a keynesian world, and the keynesian alternative," Brazilian Journal of Political Economy, Center of Political Economy, vol. 26(4), pages 537-551.
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    Keywords

    Monetary policy; Fiscal policy; Monetary union; Macroeconomic governance; Post-Keynesian;
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