Optimal Fiscal Policy Rules in a Monetary Union

Tatiana Kirsanova, Mathan Satchi, David Vines and Simon Wren-Lewis

Journal of Money, Credit and Banking, 2007, vol. 39, issue 7, 1759-1784

Abstract: This paper investigates the importance of fiscal policy in providing macroeconomic stabilization in a monetary union. We use a microfounded New Keynesian model of a monetary union, which incorporates persistence in inflation and non-Ricardian consumers, and derive optimal simple rules for fiscal authorities. We find that fiscal policy can play an important role in reacting to inflation, output, and the terms of trade, but that not much is lost if national fiscal policy is restricted to react, on the one hand, to "national differences" in inflation and, on the other hand, to either national differences in output or changes in the terms of trade. However, welfare is reduced if national fiscal policy responds only to output, ignoring inflation. Copyright 2007 The Ohio State University.

Date: 2007
References: Add references at CitEc
Citations: View citations in EconPapers (80)

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
Journal Article: Optimal Fiscal Policy Rules in a Monetary Union (2007)
Working Paper: Optimal Fiscal Policy Rules in a Monetary Union (2006)
Working Paper: Optimal Fiscal Policy Rules in a Monetary Union (2006)
Working Paper: Optimal Fiscal Policy Rules in a Monetary Union (2005)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:mcb:jmoncb:v:39:y:2007:i:7:p:1759-1784

Access Statistics for this article

Journal of Money, Credit and Banking is currently edited by Robert deYoung, Paul Evans, Pok-Sang Lam and Kenneth D. West

More articles in Journal of Money, Credit and Banking from Blackwell Publishing
Bibliographic data for series maintained by Wiley-Blackwell Digital Licensing () and Christopher F. Baum ().