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Macroeconomic stabilization, monetary-fiscal interactions, and Europe’s monetary union

Author

Listed:
  • Corsetti, Giancarlo
  • Dedola, Luca
  • Jarociński, Marek
  • Maćkowiak, Bartosz
  • Schmidt, Sebastian

Abstract

The euro area has been experiencing a prolonged period of weak economic activity and very low inflation. This paper reviews models of business cycle stabilization with an eye to formulating lessons for policy in the euro area. According to standard models, after a large recessionary shock accommodative monetary and fiscal policy together may be necessary to stabilize economic activity and inflation. The paper describes practical ways for the euro area to be able to implement an effective monetary-fiscal policy mix. JEL Classification: E31, E62, E63

Suggested Citation

  • Corsetti, Giancarlo & Dedola, Luca & Jarociński, Marek & Maćkowiak, Bartosz & Schmidt, Sebastian, 2016. "Macroeconomic stabilization, monetary-fiscal interactions, and Europe’s monetary union," Working Paper Series 1988, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20161988
    Note: 80922
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    More about this item

    Keywords

    eurobond; government bonds; joint analysis of fiscal and monetary policy; lower bound on nominal interest rates; self-fulfilling sovereign default;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy

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