Monetary and Fiscal Policy Dynamics in an Asymmetric Monetary Union

Volker Clausen and Hans-Werner Wohltmann
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Hans-Werner Wohltmann: University of Kiel

Macroeconomics from EconWPA

Abstract: This paper investigates the dynamic effects of monetary and fiscal policy in a monetary union, which is characterized by asymmetric interest rate transmission. This asymmetry gives rise to intertemporal reversals in the relative effectiveness of policy on member country outputs. The direction and the number of these reversals depend on whether policies are unanticipated or anticipated. We also study the coordination between monetary and fiscal policy in a monetary union. Monetary policy may completely stabilize European output after unanticipated fiscal policy shocks. With anticipated fiscal policy shocks, complete stabilization throughout the overall adjustment process requires monetary policy to be time-inconsistent.

Keywords: European Monetary Union; Fiscal Policy; Monetary Policy; Policy Coordination (search for similar items in EconPapers)
JEL-codes: E52 E58 E63 F42 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-ifn, nep-mac and nep-mon
Date: 2002-01-09
Note: Type of Document - ; figures: included
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Related works:
Journal Article: Monetary and fiscal policy dynamics in an asymmetric monetary union (2005)
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpma:0201001

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