Optimal monetary and fiscal policy in a currency union

Jordi Galí and Tommaso Monacelli

Journal of International Economics, 2008, vol. 76, issue 1, 116-132

Abstract: We lay out a tractable model for the analysis of optimal monetary and fiscal policy in a currency union. The monetary authority sets a common interest rate for the union, whereas fiscal policy is implemented at the country level, through the choice of government spending. In the presence of country-specific shocks and nominal rigidities, the policy mix that is optimal from the viewpoint of the union as a whole requires that inflation be stabilized at the union level by the common central bank, whereas fiscal policy has a country-specific stabilization role, one beyond the efficient provision of public goods.

Date: 2008
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Related works:
Working Paper: Optimal Monetary and Fiscal Policy in a Currency Union (2015)
Working Paper: Optimal Monetary and Fiscal Policy in a Currency Union (2005)
Working Paper: Optimal Monetary and Fiscal Policy in a Currency Union (2005)
Working Paper: Optimal Monetary and Fiscal Policy in a Currency Union (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:76:y:2008:i:1:p:116-132

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