Monetary Union: Fiscal Stabilization In The Face of Asymmetric Shocks

David Vines, Tatiana Kirsanova and Mathan Satchi

No 4433, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: This Paper investigates the importance of fiscal policy in providing macroeconomic stabilisation in a monetary union. We use a microfounded New Keynesian model of a monetary union that incorporates persistence in inflation, and examine non-cooperative interactions of fiscal and monetary authorities. We find that particularly when inflation is persistent, the use of fiscal policy for stabilisation can significantly improve welfare over and above that which arises through the working of automatic stabilisers. We conclude that a regulatory framework for fiscal policy in a monetary union should allow a role for active fiscal stabilisation.

Keywords: Monetary union; Optimal monetary and fiscal policies; Asymmetric shocks (search for similar items in EconPapers)
JEL-codes: E52 E61 E63 F41 (search for similar items in EconPapers)
Date: 2004-06
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Citations: View citations in EconPapers (5)

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Working Paper: Monetary Union: Fiscal Stabilisation In The Face Of Asymmetric Shocks (2004)
Working Paper: Monetary Union: Fiscal Stabilisation in the Face of Asymmetric Shocks (2004)
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