Monetary and Fiscal Policy Interaction in the Euro Area with Different Assumptions on the Phillips Curve

Peter Bofinger () and Eric Mayer

Open Economies Review, 2007, vol. 18, issue 3, 305 pages

Abstract: In this paper we apply a static version of a New Keynesian macromodel to a monetary union (see Bofinger et al., J Econ Educ, 37:98–117 (2006), Walsh, J Econ Educ, 33:333–346 (2002)). We show in particular that a harmonious functioning of a monetary union critically depends on the correlation of shocks that hit the currency area. Additionally a high degree of integration in product markets is advantageous for the ECB as it prevents national interest rates from driving a wedge between macroeconomic outcomes across member states. In particular small countries are in need for fiscal policy as an independent stabilization agent with room to breath. Copyright Springer Science+Business Media, LLC 2007

Keywords: Monetary policy; Inflation targeting; Fiscal policy; Policy coordination; E50; E60; H70 (search for similar items in EconPapers)
Date: 2007
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DOI: 10.1007/s11079-007-9039-3

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