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Coordination and Stabilization Gains of Fiscal Policy in a Monetary Union

  • Susana Salvado

    ()

    (FEUNL, GEE)

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.

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File URL: http://www.gee.min-economia.pt/RePEc/WorkingPapers/SS13.pdf
File Function: First version, 2009
Download Restriction: no

Paper provided by Gabinete de Estratégia e Estudos, Ministério da Economia e da Inovação in its series GEE Papers with number 0013.

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Length: 25 pages
Date of creation: Mar 2009
Date of revision: Mar 2009
Handle: RePEc:mde:wpaper:0013
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