Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/48454
Authors: 
Bofinger, Peter
Mayer, Eric
Year of Publication: 
2003
Series/Report no.: 
Würzburg economic papers 40
Abstract: 
In this paper we carry over a static version of a New Keynesian Macro Model developed in previous papers (see Bofinger, Mayer, and Wollmershäuser 2002) to a monetary union. For a similar approach see (Uhlig 2002). We will show in particular that a harmonious functioning of a monetary union critically depends on the correlation of shocks that hit the currency area. Additionally a high degree of integration in product markets is advantageous for the ECB as it prevents that national real interest rates can drive a wedge between macroeconomic outcomes across member states. In particular small countries are in a vulnerable position exposed to asymmetric shocks and therefore in need for fiscal policy as an independent stabilization agent with room to breath.
Subjects: 
Monetary policy
inflation targeting
fiscal policy
policy coordination
free-riding
JEL: 
E50
E60
H70
Document Type: 
Working Paper

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