Optimal Fiscal Policy Rules in a Monetary Union

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

No 611, Discussion Papers from University of Exeter, Department of Economics

Abstract: This paper investigates the importance of ?scal policy in providing macroeconomic stabilisation in a monetary union. We use a microfounded New Keynesian model of a monetary union which incorporates persistence in in?ation and non-Ricardian consumers, and derive optimal simple rules for ?scal authorities. We ?nd that ?scal policy can play an important role in reacting to in?ation, output and the terms of trade, but that not much is lost if national ?scal policy is restricted to react, on the one hand, to national di?erences in in?ation and, on the other hand, to either national di?erences in output or changes in the terms of trade. However, welfare is reduced if national ?scal policy responds only to output, ignoring in?ation.

Keywords: Optimal monetary and fiscal policies; Monetary union; Simple rules (search for similar items in EconPapers)
JEL-codes: E52 E61 E63 F41 (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Optimal Fiscal Policy Rules in a Monetary Union (2007)
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 (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:exe:wpaper:0611

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