Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/103950
Authors: 
Landmann, Oliver
Year of Publication: 
2014
Series/Report no.: 
Discussion Paper Series, University of Freiburg, Department of International Economic Policy 29
Abstract: 
Fiscal policy is widely criticized for its failure to act as a stabilizing countercyclical force in the European Monetary Union. Two periods should be distinguished: Prior to the Financial Crisis of 2008, when monetary policy had traction to pursue stability for the aggregate eurozone, fiscal policies failed to contain macroeconomic divergence across the currency area. After the crisis, when interest rates had hit the zero lower bound, widespread fiscal austerity exacerbated the persistent recession. The paper proposes a minimal model of decentralized fiscal policymaking in a monetary union. The model is used to interpret policy behavior in both periods. The analysis points to a pro-cyclical bias and suggests a need for coordination.
Subjects: 
Fiscal Policy
Monetary Union
Multiplier
International Policy Coordination
Monetary-Fiscal Policy Interaction
JEL: 
E5
E6
F41
F42
Document Type: 
Working Paper

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