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Monetary-fiscal interactions and the euro area's malaise

Marek Jarociński and Bartosz Maćkowiak ()

No 2072, Working Paper Series from European Central Bank

Abstract: 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. JEL Classification: E31, E32, E63

Keywords: eurobond; fiscal theory of the price level; self-fulfilling expectations; zero lower bound (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-eec, nep-mac and nep-mon
Date: 2017-06
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Related works:
Journal Article: Monetary-fiscal interactions and the euro area's malaise (2018) Downloads
Chapter: Monetary-Fiscal Interactions and the Euro Area’s Malaise (2017)
Working Paper: Monetary-Fiscal Interactions and the Euro Area's Malaise (2017) Downloads
Working Paper: Monetary-Fiscal Interactions and the Euro Area's Malaise (2017) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20172072

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