Fiscal and macroprudential policies in a monetary union

José Boscá, Javier Ferri and Margarita Rubio

No 2022/01, Discussion Papers from University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM)

Abstract: In the European Monetary Union (EMU), monetary policy is decided by the European Central Bank (ECB). This can create some imbalances that can potentially be corrected by national policies. So far, fiscal policy was the natural candidate to adjust those imbalances. Nevertheless, after the global financial crisis (GFC), a new policy candidate has emerged, namely national macroprudential policies, with the mission of reducing financial risks. This issue gives rise to an interesting research question: how do macroprudential and fiscal policies interact? By affecting real interest rates and the level of activity, a discretionary macroprudential policy alters the evolution of public debt and can impose a fiscal cost when the government is forced to increase tax rates to stabilize the public debt-to-GDP ratio. In a monetary union, a domestic macroprudential shock creates substantial crossborder financial effects and also influences the foreign country fiscal stance. Moreover, a discretionary government spending policy affects housing prices, so the strenght with which macroprudential policy reacts to a change in the price of houses has an impact on the fiscal multiplier.

Keywords: Monetary union; macroprudential policy; fiscal policy; monetary policy (search for similar items in EconPapers)
Date: 2022
New Economics Papers: this item is included in nep-cba, nep-eec, nep-mon and nep-opm
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Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Fiscal and Macroprudential Policies in a Monetary Union (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:not:notcfc:2022/01

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