Macroeconomic Stabilization with a Common Currency

Kenneth Kletzer

No 97-22, EPRU Working Paper Series from Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics

Abstract: The implications of monetary unification for fiscal policies are discussed. The roles of nominal exchange rate flexibility in the presence of asymmetric national shocks and nominal price rigidities as an automatic stabilizer and source of disturbances to real economic performance are reviewed. Two main themes are considered. The first is whether a system of fiscal insurance across member states qualitatively replicates the effects of autonomous monetary policy instruments when exchange rates are permanently fixed. It is argued that while fiscal insurance schemes increase the instruments available to fiscal authorities to influence resource allocation, they do not augment existing fiscal instruments in a manner that replicates monetary policy under long run monetary neutrality in an overlapping generations economy. Restrictions imposed on national fiscal instruments as a condition of monetary unification may give rise to a need for fiscal insurance to replace their role as stabilizers. The second theme adresses whether political unification is a necessary logical conclusion of the usefulness of fiscal insurance scheme. The argument that sustainable insurance arrangements can be devised without foregoing national sovereignty over fiscal policymaking is discussed.

New Economics Papers: this item is included in nep-ifn and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
http://web.econ.ku.dk/epru/files/wp/wp9722.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://web.econ.ku.dk/epru/files/wp/wp9722.pdf [301 Moved permanently]--> https://web.econ.ku.dk/epru/files/wp/wp9722.pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kud:epruwp:97-22

Access Statistics for this paper

More papers in EPRU Working Paper Series from Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics �ster Farimagsgade 5, Building 26, DK-1353 Copenhagen K., Denmark. Contact information at EDIRC.
Bibliographic data for series maintained by Thomas Hoffmann ().