Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/212288 
Year of Publication: 
2014
Series/Report no.: 
Bank of Finland Research Discussion Papers No. 13/2014
Publisher: 
Bank of Finland, Helsinki
Abstract: 
In this essay we study the optimal noncoordinated fiscal policy in a monetary union, where a common and independent monetary authority commits to optimally set the union-wide nominal interest rate. The national governments in the monetary union implement independent fiscal policies by choosing the level of government expenditures. We show that under a non-coordinated optimal fiscal policy rule government spending should react counter cyclically to the local output gap and inflation, while the union-wide aggregate fluctuations are stabilized by the common monetary policy. We also show that the spillovers caused by asymmetric shocks depend on the relative size of the country subject to these shocks.
Subjects: 
monetary union
monetary policy
fiscal policy
JEL: 
E52
E62
F41
Persistent Identifier of the first edition: 
ISBN: 
978-952-6699-86-8
Document Type: 
Working Paper

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