Fiscal Policy in a Currency Union at the Zero Lower Bound

David Cook and Michael Devereux
Additional contact information
David Cook: Asian Development Bank Institute

No 801, ADBI Working Papers from Asian Development Bank Institute

Abstract: When monetary policy is constrained by the zero lower bound, fiscal policy can be used to achieve macro stabilization objectives. At the same time, fiscal policy is also a key policy variable within a single currency area that allow policy makers to respond to regional demand asymmetries. How do these two uses of fiscal policy interact with one another? Is there an inherent conflict between the two objectives? How do the answers to these questions depend on the degree of fiscal space available to different members of the currency area? This paper constructs a two-country New Keynesian model of a currency union to address these questions. We find that the answers depend sensitively on the underlying internal structure of the currency union, notably the degree of trade openness between the members of the union.

Keywords: liquidity trap; monetary policy; fiscal policy; international spillovers (search for similar items in EconPapers)
JEL-codes: E02 E50 E60 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2018-01-26
New Economics Papers: this item is included in nep-dge and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.adb.org/sites/default/files/publication/396296/adbi-wp801.pdf Full text (application/pdf)

Related works:
Journal Article: Fiscal Policy in a Currency Union at the Zero Lower Bound (2019)
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:ris:adbiwp:0801

Access Statistics for this paper

More papers in ADBI Working Papers from Asian Development Bank Institute Kasumigaseki Building 8F, 3-2-5, Kasumigaseki, Chiyoda-ku, Tokyo 100-6008, Japan. Contact information at EDIRC.
Bibliographic data for series maintained by ADB Institute ().