IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

The Unbearable Tightness of Being in a Monetary Union: Fiscal Restrictions and Regional Stability"

We study how constrained fiscal policy can affect regional inflation and output in a two-region model of a monetary union with sticky prices and distortionary taxation. Both government expenditure and taxes can be used to stabilize regional variables; however, the best welfare outcome is obtained under constant taxes and constant regional inflations. With cooperation debt and deficit constraints reduce regional inflation variability, but the path of output is suboptimal. Under non-cooperation the opposite occurs due to a trade-off between taxation and inflation variability. Decentralized rules, rather than constraints, stabilize regional inflation and output. They imply more fiscal action for smaller union members.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: ftp://ftp.igier.uni-bocconi.it/wp/2005/294.pdf
Our checks indicate that this address may not be valid because: 500 Failed to connect to FTP server ftp.igier.uni-bocconi.it: Net::FTP: Bad hostname 'ftp.igier.uni-bocconi.it'. If this is indeed the case, please notify ()


Download Restriction: no

Paper provided by IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University in its series Working Papers with number 294.

as
in new window

Length:
Date of creation: 2005
Date of revision:
Handle: RePEc:igi:igierp:294
Contact details of provider: Postal: via Rontgen, 1 - 20136 Milano (Italy)
Phone: 0039-02-58363301
Fax: 0039-02-58363302
Web page: http://www.igier.unibocconi.it/

Order Information: Web: http://www.igier.unibocconi.it/en/papers/index.htm Email:


References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Beetsma, Roel M. W. J. & Jensen, Henrik, 2004. "Mark-up fluctuations and fiscal policy stabilization in a monetary union," Journal of Macroeconomics, Elsevier, vol. 26(2), pages 357-376, June.
  2. Liu, Zheng & Pappa, Evi, 2008. "Gains from international monetary policy coordination: Does it pay to be different?," Journal of Economic Dynamics and Control, Elsevier, vol. 32(7), pages 2085-2117, July.
  3. Beetsma, R.M.W.J. & Bovenberg, A.L., 1995. "Monetary union without fiscal coordination may discipline policymakers," Discussion Paper 1995-59, Tilburg University, Center for Economic Research.
  4. Mitchell, Peter R. & Sault, Joanne E. & Wallis, Kenneth F., 2000. "Fiscal policy rules in macroeconomic models: principles and practice," Economic Modelling, Elsevier, vol. 17(2), pages 171-193, April.
  5. Fabio Canova & Evi Pappa, 2004. "The elusive costs and the immaterial gains of fiscal constraints," LSE Research Online Documents on Economics 518, London School of Economics and Political Science, LSE Library.
  6. Dixit, Avinash, 2001. "Games of monetary and fiscal interactions in the EMU," European Economic Review, Elsevier, vol. 45(4-6), pages 589-613, May.
  7. Uhlig, Harald, 2002. "One Money, but Many Fiscal Policies in Europe: What Are the Consequences?," CEPR Discussion Papers 3296, C.E.P.R. Discussion Papers.
  8. Fabio Canova & Evi Pappa, 2007. "Price Differentials in Monetary Unions: The Role of Fiscal Shocks," Economic Journal, Royal Economic Society, vol. 117(520), pages 713-737, 04.
  9. Andrea Ferrero, 2005. "Fiscal and Monetary Rules for a Currency Union," Macroeconomics 0508020, EconWPA.
  10. Pappa, Evi, 2004. "Do the ECB and the fed really need to cooperate? Optimal monetary policy in a two-country world," Journal of Monetary Economics, Elsevier, vol. 51(4), pages 753-779, May.
  11. Galí, Jordi & Gertler, Mark & Lopez-Salido, Jose David, 2002. "Markups, Gaps and the Welfare Costs of Business Fluctuations," CEPR Discussion Papers 3212, C.E.P.R. Discussion Papers.
  12. Chari, V.V. & Kehoe, Patrick J., 2007. "On the need for fiscal constraints in a monetary union," Journal of Monetary Economics, Elsevier, vol. 54(8), pages 2399-2408, November.
  13. Pierpaolo Benigno & Michael Woodford, 2004. "Optimal Monetary and Fiscal Policy: A Linear-Quadratic Approach," NBER Chapters, in: NBER Macroeconomics Annual 2003, Volume 18, pages 271-364 National Bureau of Economic Research, Inc.
  14. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
  15. Blanchard, Olivier J & Giavazzi, Francesco, 2001. "Macroeconomic Effects of Regulation and Deregulation in Goods and Labour Markets," CEPR Discussion Papers 2713, C.E.P.R. Discussion Papers.
  16. Francesco Giavazzi & Tullio Jappelli & Marco Pagano, 2000. "Searching for Non-Linear Effects of Fiscal Policy: Evidence from Industrial and Developing Countries," NBER Working Papers 7460, National Bureau of Economic Research, Inc.
  17. Beetsma, Roel & Jensen, Henrik, 2002. "Monetary and fiscal policy interactions in a micro-founded model of a monetary union," Working Paper Series 0166, European Central Bank.
  18. Russell Cooper & Hubert Kempf, 2004. "Overturning Mundell: Fiscal Policy in a Monetary Union," Review of Economic Studies, Oxford University Press, vol. 71(2), pages 371-396.
  19. Jürgen von Hagen & Andrew Hughes Hallett & Rolf Strauch, 2001. "Budgetary Consolidation in EMU," European Economy - Economic Papers 148, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
  20. Dixit, Avinash & Lambertini, Luisa, 2003. "Symbiosis of monetary and fiscal policies in a monetary union," Journal of International Economics, Elsevier, vol. 60(2), pages 235-247, August.
  21. Matthew B. Canzoneri & Robert E. Cumby & Behzad T. Diba, 2006. "How Do Monetary and Fiscal Policy Interact in the European Monetary Union?," NBER Chapters, in: NBER International Seminar on Macroeconomics 2004, pages 241-326 National Bureau of Economic Research, Inc.
  22. Pierpaolo Benigno & Michael Woodford, 2005. "Inflation Stabilization And Welfare: The Case Of A Distorted Steady State," Journal of the European Economic Association, MIT Press, vol. 3(6), pages 1185-1236, December.
  23. Andersen, Torben M, 2002. "Fiscal Stabilization Policy in a Monetary Union with Inflation Targeting," CEPR Discussion Papers 3232, C.E.P.R. Discussion Papers.
  24. John B. Taylor, 1999. "Introduction to "Monetary Policy Rules"," NBER Chapters, in: Monetary Policy Rules, pages 1-14 National Bureau of Economic Research, Inc.
  25. Julio J. Rotemberg & Michael Woodford, 1998. "An Optimization-Based Econometric Framework for the Evaluation of Monetary Policy: Expanded Version," NBER Technical Working Papers 0233, National Bureau of Economic Research, Inc.
  26. Beetsma, Roel & Uhlig, Harald, 1999. "An Analysis of the Stability and Growth Pact," Economic Journal, Royal Economic Society, vol. 109(458), pages 546-71, October.
  27. Duarte, Margarida & Wolman, Alexander L., 2002. "Regional inflation in a currency union: fiscal policy vs. fundamentals," Working Paper Series 0180, European Central Bank.
  28. Jürgen von Hagen & Susanne Mundschenk, 2002. "Fiscal and Monetary Policy Coordination in EMU," Working Papers Central Bank of Chile 194, Central Bank of Chile.
  29. Leeper, Eric M., 1991. "Equilibria under 'active' and 'passive' monetary and fiscal policies," Journal of Monetary Economics, Elsevier, vol. 27(1), pages 129-147, February.
  30. John B. Taylor, 1998. "An Historical Analysis of Monetary Policy Rules," NBER Working Papers 6768, National Bureau of Economic Research, Inc.
  31. Jordi Gali & Tommaso Monacelli, 2005. "Optimal fiscal policy in a monetary union," Proceedings, Federal Reserve Bank of San Francisco.
  32. Collard, Fabrice & Dellas, Harris, 2005. "Tax distortions and the case for price stability," Journal of Monetary Economics, Elsevier, vol. 52(1), pages 249-273, January.
  33. John B. Taylor, 1999. "Monetary Policy Rules," NBER Books, National Bureau of Economic Research, Inc, number tayl99-1, 07.
  34. Dixit, Avinash & Lambertini, Luisa, 2001. "Monetary-fiscal policy interactions and commitment versus discretion in a monetary union," European Economic Review, Elsevier, vol. 45(4-6), pages 977-987, May.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:igi:igierp:294. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.