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Coordination of fiscal policies in a monetary union

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Abstract

This paper examines how the member countries of a monetary union react to country-specific shocks and to shocks from the rest of the world, when te budget deficit is the only policy instrument available. We develop a three-country model in which countries show different preferences regarding objectives, and face asymmetric disturbances. Two of the countries form a monetary union where an independent central bank controls monetary policy, and fiscal policy is determined by fiscal authorities at the national level. In this framework, we analyse in strategic terms how authorities can deal with monetary, real and supply shocks using fiscal policy with stabilizing purposes. Finally, we discuss the welfare aspects of the optimal solution and the extent to which a coordinated fiscal policy may influence the performance and evlution of the monetary union. Classification-JEL: E61, E62, F42

Suggested Citation

  • Carmen Díaz Roldán, 2000. "Coordination of fiscal policies in a monetary union," Documentos de Trabajo - Lan Gaiak Departamento de Economía - Universidad Pública de Navarra 0003, Departamento de Economía - Universidad Pública de Navarra.
    • Handle: RePEc:nav:ecupna:0003
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    Cited by:

    1. Carmen Díaz-Roldán, "undated". "Coordination of Fiscal Policies in a Monetary Union," Working Papers on International Economics and Finance 00-09, FEDEA.
    2. Carmen Díaz - Roldan, 2003. "Supply-policy coordination in a monetary union," Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, vol. 18(2), pages 163-179.
    3. Mª Carmen Díaz Roldán, 2002. "On the Desirability of Supply-Side Intervention in a Monetary Union," Economic Working Papers at Centro de Estudios Andaluces E2002/21, Centro de Estudios Andaluces.
    4. Luca Onorante, 2006. "Interaction of Fiscal Policies on the Euro Area: How Much Pressure on the ECB?," Economics Working Papers ECO2006/9, European University Institute.

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    More about this item

    Keywords

    Monetary union; fiscal policy; policy coordination;
    All these keywords.

    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; Modern Monetary Theory
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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