Optimal monetary and fiscal policy in a currency union
We lay out a tractable model for the analysis of optimal monetary and fiscal policy in a currency union. The monetary authority sets a common interest rate for the union, whereas fiscal policy is implemented at the country level, through the choice of government spending. In the presence of country-specific shocks and nominal rigidities, the policy mix that is optimal from the viewpoint of the union as a whole requires that inflation be stabilized at the union level by the common central bank, whereas fiscal policy has a country-specific stabilization role, one beyond the efficient provision of public goods.
Year of publication: |
2008
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Authors: | GaliĀ, Jordi ; Monacelli, Tommaso |
Published in: |
Journal of International Economics. - Elsevier, ISSN 0022-1996. - Vol. 76.2008, 1, p. 116-132
|
Publisher: |
Elsevier |
Saved in:
Online Resource
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