Monetary-Fiscal Interactions and the Euro Area's Malaise
Marek Jarociński and
Bartosz Maćkowiak ()
No 12020, CEPR Discussion Papers from C.E.P.R. Discussion Papers
When monetary and fiscal policy are conducted as in the euro area, output, inflation, and government bond default premia are indeterminate according to a standard general equilibrium model with sticky prices extended to include defaultable public debt. With sunspots, the model mimics the recent euro area data. We specify an alternative configuration of monetary and fiscal policy, with a non-defaultable eurobond. If this policy arrangement had been in place since the onset of the Great Recession, output could have been much higher than in the data with inflation in line with the ECB's objective.
Keywords: fiscal theory of the price level; eurobond; self-ful lfiling expectations; zero lower bound (search for similar items in EconPapers)
JEL-codes: E31 E32 E63 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-eec, nep-mac and nep-mon
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Journal Article: Monetary-fiscal interactions and the euro area's malaise (2018)
Chapter: Monetary-Fiscal Interactions and the Euro Area’s Malaise (2017)
Working Paper: Monetary-fiscal interactions and the euro area's malaise (2017)
Working Paper: Monetary-Fiscal Interactions and the Euro Area's Malaise (2017)
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