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Monetary and fiscal policy interaction in the Euro area with different assumptions on the Phillips curve

Peter Bofinger () and Eric Mayer ()

No 40, W.E.P. - Würzburg Economic Papers from University of Würzburg, Chair for Monetary Policy and International Economics

Abstract: In this paper we carry over a static version of a New Keynesian Macro Model developed in previous papers (see Bofinger, Mayer, and Wollmershäuser 2002) to a monetary union. For a similar approach see (Uhlig 2002). We will show in particular that a harmonious functioning of a monetary union critically depends on the correlation of shocks that hit the currency area. Additionally a high degree of integration in product markets is advantageous for the ECB as it prevents that national real interest rates can drive a wedge between macroeconomic outcomes across member states. In particular small countries are in a vulnerable position exposed to asymmetric shocks and therefore in need for fiscal policy as an independent stabilization agent with room to breath.

Keywords: Monetary policy; inflation targeting; fiscal policy; policy coordination; free-riding (search for similar items in EconPapers)
JEL-codes: E50 E60 H70 (search for similar items in EconPapers)
Date: 2003
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https://www.econstor.eu/bitstream/10419/48454/1/378420461.pdf (application/pdf)

Related works:
Journal Article: Monetary and Fiscal Policy Interaction in the Euro Area with Different Assumptions on the Phillips Curve (2007) Downloads
Working Paper: Monetary and Fiscal policy Interaction in the Euro Area with Different Assumptions on the Phillips Curve (2004) Downloads
Working Paper: Monetary and Fiscal Policy Interaction in the Euro Area with different assumptions on the Phillips curve (2004) Downloads
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