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

Stefanie Flotho ()
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Stefanie Flotho: Institute for Economic Research Chair of Economic Theory, University of Freiburg

No 20, Discussion Paper Series from Department of International Economic Policy, University of Freiburg

Abstract: 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.

Keywords: Monetary Union; Fiscal Policy; Zero Lower Bound on nominal interest rates; zero interest rate policy; Non-coordination (search for similar items in EconPapers)
JEL-codes: E31 E52 E58 E61 E62 E63 F33 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2012-06, Revised 2012-06
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:fre:wpaper:20

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