Fiscal Policy and Macroeconomic Stability Within a Currency Union.
We analyse the stability of countries within a monetary union in the face of asymmetric shocks, using a simple but widely applicable model. We show that members of the union may be subject to severe, and possibly unstable, cycles following asymmetric shocks if there is a significant backward looking...
| Main Authors: | , , |
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| Format: | Working paper |
| Language: | English |
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CEPR
2006
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| _version_ | 1797069117282320384 |
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| author | Kirsanova, T Vines, D Wren-Lewis, S |
| author_facet | Kirsanova, T Vines, D Wren-Lewis, S |
| author_sort | Kirsanova, T |
| collection | OXFORD |
| description | We analyse the stability of countries within a monetary union in the face of asymmetric shocks, using a simple but widely applicable model. We show that members of the union may be subject to severe, and possibly unstable, cycles following asymmetric shocks if there is a significant backward looking element in inflation behaviour, and if real interest rates influence the level of aggregate demand. This cyclical instability can be mitigated if fiscal policy in each member country reacts to inflation differences, but it can be aggravated if fiscal feedback on debt is too strong. |
| first_indexed | 2024-03-06T22:19:45Z |
| format | Working paper |
| id | oxford-uuid:549eaa79-8729-43cb-866c-7843d19d5fd6 |
| institution | University of Oxford |
| language | English |
| last_indexed | 2024-03-06T22:19:45Z |
| publishDate | 2006 |
| publisher | CEPR |
| record_format | dspace |
| spelling | oxford-uuid:549eaa79-8729-43cb-866c-7843d19d5fd62022-03-26T16:39:06ZFiscal Policy and Macroeconomic Stability Within a Currency Union.Working paperhttp://purl.org/coar/resource_type/c_8042uuid:549eaa79-8729-43cb-866c-7843d19d5fd6EnglishDepartment of Economics - ePrintsCEPR2006Kirsanova, TVines, DWren-Lewis, SWe analyse the stability of countries within a monetary union in the face of asymmetric shocks, using a simple but widely applicable model. We show that members of the union may be subject to severe, and possibly unstable, cycles following asymmetric shocks if there is a significant backward looking element in inflation behaviour, and if real interest rates influence the level of aggregate demand. This cyclical instability can be mitigated if fiscal policy in each member country reacts to inflation differences, but it can be aggravated if fiscal feedback on debt is too strong. |
| spellingShingle | Kirsanova, T Vines, D Wren-Lewis, S Fiscal Policy and Macroeconomic Stability Within a Currency Union. |
| title | Fiscal Policy and Macroeconomic Stability Within a Currency Union. |
| title_full | Fiscal Policy and Macroeconomic Stability Within a Currency Union. |
| title_fullStr | Fiscal Policy and Macroeconomic Stability Within a Currency Union. |
| title_full_unstemmed | Fiscal Policy and Macroeconomic Stability Within a Currency Union. |
| title_short | Fiscal Policy and Macroeconomic Stability Within a Currency Union. |
| title_sort | fiscal policy and macroeconomic stability within a currency union |
| work_keys_str_mv | AT kirsanovat fiscalpolicyandmacroeconomicstabilitywithinacurrencyunion AT vinesd fiscalpolicyandmacroeconomicstabilitywithinacurrencyunion AT wrenlewiss fiscalpolicyandmacroeconomicstabilitywithinacurrencyunion |