Domestic Fiscal Policy in a Monetary Union: What are the Spillovers? / Fiskalpolitik in einer Währungsunion: Internationale Auswirkungen

Heinz Welsch

Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), 2000, vol. 220, issue 3, 327-342

Abstract: This paper examines the spillovers of domestic fiscal expansion in a monetary union. Such a policy action leads to cross-country crowding-out effects on the one hand and cross-country multiplier effects on the other. The overall effect is indeterminate a priori. The approach pursued is therefore an empirical one, using a computable general equilibrium (CGE) model with a simple representation of the money market. Three groups of parameters are identified as key determinants of the fiscal policy spillover: the elasticities of substitution in foreign trade (being a measure of the degree of trade integration), the interest elasticity of money demand, and the elasticity of wages with respect to the employment situation. For a reasonable range of parameter configurations, the interest rate effect always dominates the multiplier effect. Especially, even with a degree of trade integration four times as high as commonly assumed the overall spillover is (slightly) negative.

Keywords: Monetary union; fiscal policy; international spillovers; computable general equilibrium; Währungsunion; Fiskalpolitik; internationale Spillovers; berechenbares allgemeines Gleichgewichtsmodell (search for similar items in EconPapers)
Date: 2000
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:jns:jbstat:v:220:y:2000:i:3:p:327-342

DOI: 10.1515/jbnst-2000-0306

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