Abstract

http://ssrn.com/abstract=1676796
 


 



Monetary Rules and the Spillover of Regional Fiscal Policies in a Federation


Russell Cooper


University of Texas at Austin - Department of Economics; National Bureau of Economic Research (NBER)

Hubert Kempf


Paris School of Economics and Université Paris-1 Panthéon-Sorbonne; Direction de la Recherche, Banque de France

Dan Peled


University of Haifa - Department of Economics; National Bureau of Economic Research (NBER)

February 1, 2009

Banque de France Working Paper No. 233

Abstract:     
This paper studies the effects of monetary policy rules in a fiscal federation, such as the European Union. The focus of the analysis is the interaction between the fiscal policy of member countries (regions) and the monetary authority. Each of the countries structures its fiscal policy (spending and taxes) with the interests of its citizens in mind. Ricardian equivalence does not hold due to the presence of monetary frictions, modelled here as reserve requirements. When capital markets are integrated, the fiscal policy of one country influences equilibrium wages and interest rates. Under certain rules, monetary policy may respond to the price variations induced by regional fiscal policies. Depending on the type of rule it adopts, interventions by the monetary authority affect the magnitude and nature of the spillover from regional fiscal policy.

Number of Pages in PDF File: 26

Keywords: Monetary Union, Inflation tax, Seigniorage, monetary rules, public debt

JEL Classification: E31, E42, E58, E62

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Date posted: September 16, 2010  

Suggested Citation

Cooper, Russell and Kempf, Hubert and Peled, Dan, Monetary Rules and the Spillover of Regional Fiscal Policies in a Federation (February 1, 2009). Banque de France Working Paper No. 233. Available at SSRN: http://ssrn.com/abstract=1676796 or http://dx.doi.org/10.2139/ssrn.1676796

Contact Information

Russell W. Cooper (Contact Author)
University of Texas at Austin - Department of Economics ( email )
Austin, TX 78712
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Hubert Kempf
Paris School of Economics and Université Paris-1 Panthéon-Sorbonne ( email )
106-112 Boulevard de l'Hopital
Paris Cedex 13, 75647
France
Direction de la Recherche, Banque de France
31, rue Croix des Petits Champs
75049 Paris Cedex 01
France
Dan Peled
University of Haifa - Department of Economics ( email )
Haifa 31905
Israel
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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