 When does financial integration matter for fiscal policy in a currency union? A welfare-based approachGilbert Koenig and Irem Zeyneloglu () Economic Modelling, 2010, vol. 27, issue 3, 620-630 Abstract: We use a two-country new open economy macroeconomics model describing a currency union with imperfect financial integration. We assume that household preferences are biased towards the goods produced within the country. We use this setup to show how the degree of financial integration and the home bias affect the welfare efficiency of fiscal policy. This is particularly important for the implications of a fiscal policy launched by a member of the euro zone where the home bias is in a decreasing trend due to higher goods market integration and where there are explicit efforts to enhance financial integration. The results show in particular how the effects of an increasing financial integration on the impact of a fiscal policy can be mitigated or amplified by a decreasing home-product bias. Moreover, under certain conditions, the degree of financial integration has no effect on the welfare efficiency of fiscal policy despite its non-negligible effects on the components of welfare. Keywords: New; open; economy; macroeconomics; Fiscal; policy; Financial; integration; Home; bias (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:27:y:2010:i:3:p:620-630 Access Statistics for this article Economic Modelling is currently edited by S. Hall and P. Pauly More articles in Economic Modelling from Elsevier |
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