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

Peter Bofinger () and Eric Mayer ()

No 4790, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: In this Paper we carry over a static version of a New Keynesian Macromodel a la Clarida Gali Gertler (1999) to a monetary union. We will 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 that national real interest rates can drive a wedge between macroeconomic outcomes across member states. In particular small countries are vulnerable and therefore in need of fiscal policy as an independent stabilization agent with room to breath.

Keywords: fiscal policy; inflation targeting; monetary policy; policy coordination (search for similar items in EconPapers)
JEL-codes: E50 E60 H70 (search for similar items in EconPapers)
Date: 2004-12
New Economics Papers: this item is included in nep-cba, nep-fmk, nep-mac, nep-mon and nep-pbe
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Related works:
Journal Article: Monetary and Fiscal Policy Interaction in the Euro Area with Different Assumptions on the Phillips Curve (2007) Downloads
Working Paper: Monetary and Fiscal Policy Interaction in the Euro Area with different assumptions on the Phillips curve (2004) Downloads
Working Paper: Monetary and fiscal policy interaction in the Euro area with different assumptions on the Phillips curve (2003) Downloads
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