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Cross-border spill-overs from fiscal stimulus in a monetary union

Ruthira Naraidoo (), Eric Schaling and Mewael F. Tesfaselassie

Economic Modelling, 2017, vol. 65, issue C, 95-105

Abstract: We analyse domestic and cross-border effects of fiscal policy in a two-region business cycle model of a monetary union. Without relying on debt consolidation via spending reversals along the lines of Corsetti, Meier and Mueller (2010) and Corsetti and Mueller (2014) we show that a fiscal expansion by the core economies of the euro area is associated with crowding in of both core and periphery consumption. Interestingly, cross-border spill-over effects are larger the larger the share of credit constrained households in the periphery.

Keywords: Fiscal policy; New-Keynesian model; Open economy; Monetary union; Rule-of-thumb consumers; Habit persistence (search for similar items in EconPapers)
JEL-codes: E62 F42 F45 (search for similar items in EconPapers)
Date: 2017
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Handle: RePEc:eee:ecmode:v:65:y:2017:i:c:p:95-105