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Title:The role of fiscal policy in a monetary union : are National automatic stabilizers effective? PDF Logo
Authors:Colciago, Andrea
Muscatelli, Vito Antonio
Ropele, Tiziano
Tirelli, Patrizio
Issue Date:2006
Series/Report no.:CESifo working papers 1682
Abstract: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.
JEL:E58
E63
E62
Document Type:Working Paper
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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