 Fiscal policy coordination in currency unions at the effective lower boundThomas Hettig and Gernot Müller Journal of International Economics, 2018, vol. 115, issue C, 80-98 Abstract: According to the pre-crises consensus there are separate domains for monetary and fiscal stabilization in a currency union. While the common monetary policy takes care of union-wide fluctuations, fiscal policies should be tailored to meet country-specific conditions. This separation is no longer optimal, however, if monetary policy is constrained by an effective lower bound on interest rates. Specifically, we show that in this case there are benefits from coordinating fiscal policies across countries. By coordinating fiscal policies, policymakers are better able to stabilize union-wide activity and inflation while avoiding detrimental movements of a country's terms of trade. Keywords: Currency union; Fiscal policy; Effective lower bound; Coordination; EMU; Terms-of-trade externality; Optimal policy (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:inecon:v:115:y:2018:i:c:p:80-98 DOI: 10.1016/j.jinteco.2018.08.009 Access Statistics for this article Journal of International Economics is currently edited by Gourinchas, Pierre-Olivier and RodrÃguez-Clare, Andrés More articles in Journal of International Economics from Elsevier |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.