Fiscal Policy in a Monetary Union: Can Fiscal Cooperation be Counterproductive?

Luisa Lambertini, Paul Levine () and Joseph Pearlman

No 1707, School of Economics Discussion Papers from School of Economics, University of Surrey

Abstract: We analyze the interaction of monetary and fiscal policies in a monetary union where the common central bank is more conservative than the fiscal authorities. When monetary and fiscal policies are discretionary, we find that the Nash equilibrium is sub-optimal with higher output and lower inflation than the cooperative Ramsey op- timum. In a further example of counterproductive cooperative, we find that fiscal cooperation makes matters worse. We also examine cooperative and non-cooperative fiscal policy in the case where the central bank can commit and has the same prefer- ences as the fiscal authorities.

Keywords: fiscal-monetary policy interactions; fiscal cooperation and non-cooperation. (search for similar items in EconPapers)
JEL-codes: F33 F42 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2007-11
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 (5)

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Persistent link: https://EconPapers.repec.org/RePEc:sur:surrec:1707

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