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Coordination and Stabilization Gains of Fiscal Policy in a Monetary Union

Author

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  • Susana Salvado

    () (FEUNL, GEE)

Abstract

The issue of fiscal coordination in a Monetary Union is recurrent as monetary policy can no longer be used as a national stabilization policy instrument. We measure the increase in welfare due to the coordination of fiscal policies in the typical Neo-Keynesian environment, where monetary policy would have significantive and persistent real effects. We propose a decomposition of coordination gains into a deterministic and a stochastic parcel. We show that the deterministic fiscal coordination gain is high but that the stochastic gain, often called stabilization gain, is very small generating, for our calibration, an increase of 0.0161 percentage points, measured in consumption equivalents.

Suggested Citation

  • Susana Salvado, 2009. "Coordination and Stabilization Gains of Fiscal Policy in a Monetary Union," GEE Papers 0013, Gabinete de Estratégia e Estudos, Ministério da Economia, revised Mar 2009.
  • Handle: RePEc:mde:wpaper:0013
    as

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    File URL: http://www.gee.gov.pt/RePEc/WorkingPapers/SS13.pdf
    File Function: First version, 2009
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    References listed on IDEAS

    as
    1. Christiano, Lawrence J & Eichenbaum, Martin & Evans, Charles, 1996. "The Effects of Monetary Policy Shocks: Evidence from the Flow of Funds," The Review of Economics and Statistics, MIT Press, pages 16-34.
    2. Alfredo M. Pereira & Jorge M. Andraz, 2007. "Public Investment In Transportation Infrastructures And Industry Performance In Portugal," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 32(1), pages 1-20, June.
    3. Christopher A. Sims & Tao Zha, 1999. "Error Bands for Impulse Responses," Econometrica, Econometric Society, vol. 67(5), pages 1113-1156, September.
    4. Rudebusch, Glenn D, 1998. "Do Measures of Monetary Policy in a VAR Make Sense? A Reply," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 943-948, November.
    5. Alfredo M. Pereira & Jorge M. Andraz, 2003. "On the Impact of Public Investment On the Performance of U.S. Industries," Public Finance Review, , vol. 31(1), pages 66-90, January.
    6. Rudebusch, Glenn D, 1998. "Do Measures of Monetary Policy in a VAR Make Sense?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 907-931, November.
    7. Alfredo Pereira & Jorge Andraz, 2004. "Public highway spending and state spillovers in the USA," Applied Economics Letters, Taylor & Francis Journals, vol. 11(12), pages 785-788.
    8. Alfredo M. Pereira & Jorge M. Andraz, 2005. "Public Investment in Transportation Infrastructure and Economic Performance in Portugal," Review of Development Economics, Wiley Blackwell, vol. 9(2), pages 177-196, May.
    9. Alfredo M. Pereira, 2000. "Is All Public Capital Created Equal?," The Review of Economics and Statistics, MIT Press, vol. 82(3), pages 513-518, August.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Coordination; Fiscal Policy; Gains; Nash.;

    JEL classification:

    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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