COORDINATION OF FISCAL POLICIES IN A MONETARY UNION

Carmen Diaz-Roldan

No 00-09, Working Papers from Asociación Española de Economía y Finanzas Internacionales

Abstract: This paper examines how the member countries of a monetary union react to country-specific shocks and to shocks from the rest of the world, when the budget deficit is the only policy instrument available. We develop a three-country model in which countries show different preferences regarding objectives, and face asymmetric disturbances. Two of the countries form a monetary union where an independent central bank controls monetary policy, and fiscal policy is determined by fiscal authorities at the national level. In this framework, we analyze in strategic terms how authorities can deal with monetary, real and supply shocks using fiscal policy with stabilizing purposes. Finally, we discuss the welfare aspects of the optimal solution and extent to which a coordinate fiscal policy may influence the performance and evolution of the monetary union.

Keywords: Monetary union; fiscal policy; policy coordination (search for similar items in EconPapers)
JEL-codes: E61 E62 F42 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2000-12
References: Add references at CitEc
Citations: View citations in EconPapers (4)

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Related works:
Working Paper: Coordination of fiscal policies in a monetary union (2000)
Working Paper: Coordination of Fiscal Policies in a Monetary Union
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Persistent link: https://EconPapers.repec.org/RePEc:aee:wpaper:0009

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