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Monetary Union: Fiscal Stabilization In The Face of Asymmetric Shocks

Kirsanova, Tatiana, Satchi, Mathan, Vines, David (2004) Monetary Union: Fiscal Stabilization In The Face of Asymmetric Shocks. Centre for Economic Policy Research Discussion Paper, (DP4433). (KAR id:11136)


This Paper investigates the importance of fiscal policy in providing macroeconomic stabilisation in a monetary union. We use a microfounded New Keynesian model of a monetary union that incorporates persistence in inflation, and examine non-cooperative interactions of fiscal and monetary authorities. We find that particularly when inflation is persistent, the use of fiscal policy for stabilisation can significantly improve welfare over and above that which arises through the working of automatic stabilisers. We conclude that a regulatory framework for fiscal policy in a monetary union should allow a role for active fiscal stabilisation.

Item Type: Article
Subjects: H Social Sciences > HB Economic Theory
Divisions: Divisions > Division of Human and Social Sciences > School of Economics
Depositing User: Mathan Satchithananthan
Date Deposited: 07 Oct 2008 09:48 UTC
Last Modified: 16 Nov 2021 09:49 UTC
Resource URI: (The current URI for this page, for reference purposes)

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