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Monetary and Fiscal Policy in a Monetary Union under the Zero Lower Bound constraint

  • Flotho, Stefanie
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    This paper explicitly models strategic interaction between two independent national fiscal authorities and a single central bank in a simple New Keynesian model of a monetary union. Monetary policy is constrained by the zero lower bound on nominal interest rates. Coordination of fiscal policies does not always lead to the best welfare effects. It depends on the nature of the shocks whether governments prefer to coordinate or not coordinate. The size of the government multipliers depend on the combination of the intraunion competitiveness parameters. They get larger in case of implementation lags of fiscal policy.

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    File URL: https://www.econstor.eu/bitstream/10419/62028/1/VfS_2012_pid_62.pdf
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    Paper provided by Verein für Socialpolitik / German Economic Association in its series Annual Conference 2012 (Goettingen): New Approaches and Challenges for the Labor Market of the 21st Century with number 62028.

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    Date of creation: 2012
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    Handle: RePEc:zbw:vfsc12:62028
    Contact details of provider: Web page: http://www.socialpolitik.org/
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    11. Gomes, S. & Jacquinot, P. & Mestre, R. & Sousa, J., 2015. "Global policy at the zero lower bound in a large-scale DSGE model," Journal of International Money and Finance, Elsevier, vol. 50(C), pages 134-153.
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    17. Bas van Aarle & Harry Garretsen & Florence Huart, 2004. "Monetary and Fiscal Policy Rules in the EMU," German Economic Review, Verein für Socialpolitik, vol. 5(4), pages 407-434, November.
    18. Bennett T. McCallum, 2001. "Should Monetary Policy Respond Strongly to Output Gaps?," NBER Working Papers 8226, National Bureau of Economic Research, Inc.
    19. Tomasz Michalak & Jacob Engwerda & Joseph Plasmans, 2009. "Strategic Interactions between Fiscal and Monetary Authorities in a Multi-Country New-Keynesian Model of a Monetary Union," CESifo Working Paper Series 2534, CESifo Group Munich.
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