Fiscal policy coordination in currency unions (at the zero lower bound)

Gernot Müller, Thomas Hettig and Gernot Mueller

VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy from Verein für Socialpolitik / German Economic Association

Abstract: Within currency unions, according to the pre-crises consensus, countries can rely on fiscal policy to stabilize economic activity locally. Monetary policy's role, in turn, is to stabilize economic activity at the union level. Against this background, we reassess the optimal degree of fiscal stabilization within currency union provided that monetary policy is constrained by the zero lower bound on nominal interest rates. Specifically, we contrast the optimal level of government consumption from an individual country's perspective with the optimal level from the union's perspective and explore the need for coordinating expansionary fiscal policies.

JEL-codes: E61 E62 F41 (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc15:112826

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