Resource title

The role of fiscal policy in a monetary union : are National automatic stabilizers effective?

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Resource description

We assess the role of national fiscal policies, as automatic stabilizers, within a monetary union. We use a two-country New Keynesian DGE model which incorporates non-Ricardian consumers (as in Gal? et al. 2004) and a home bias in the composition of national consumption bundles. We find that fiscal policies stabilize the aggregate economy but, in some cases, generate conflicting views among national policymakers. Finally, model determinacy requires that national fiscal feedbacks on debt accumulation be designed with reference to the debt dynamics of the entire monetary union. This is in sharp contrast with the "Brussels consensus" based on the view that the ECB alone should stabilize the union-wide economy and national fiscal policies should react to idiosyncratic shocks and to national debt levels.

Resource author

Andrea Colciago, Vito Antonio Muscatelli, Tiziano Ropele, Patrizio Tirelli

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Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/19146

Resource license

Adapt according to the presented license agreement and reference the original author.