Fiscal and macroprudential policy coordination for stabilization purposes

María Malmierca‐Ordoqui

Metroeconomica, 2024, vol. 75, issue 4, 641-669

Abstract: The COVID‐19 pandemic has highlighted the need of maintaining financial and economic stabilization to mitigate the negative effects of the health crisis. In the context of a currency area, national governments count on national fiscal and macroprudential instruments to stabilize their own economy. Through a DSGE model for a monetary union I assess the welfare implications of different macroprudential‐fiscal policy combinations, that are set with stabilization purposes. The findings confirm that for a supply and a demand shock, as the ones responsible for the economic crisis of 2020, the stabilizing policy mix might deteriorate welfare. By contrast, after a financial shock, similar to that of the Great Recession, the stabilizing policy combination strategies always achieve welfare gains.

Date: 2024
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