Symbiosis of Monetary and Fiscal Policies in a Monetary Union

Journal of International Economics, Vol. 60, No. 2, 2003

15 Pages Posted: 18 Feb 2000

See all articles by Avinash Dixit

Avinash Dixit

Princeton University - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Luisa Lambertini

Ecole Polytechnique Fédérale de Lausanne

Date Written: August 13, 1999

Abstract

We consider the interaction between the monetary policy of a common central bank in a monetary union, and the separate fiscal policies of the member countries. We construct a model of the Barro-Gordon type extended to many countries and countercyclical fiscal stabilization policies. Each country's fiscal policies inflict positive (output expansion) and negative (inflation) externalities on other countries, and the common monetary policy has its time-consistency problem. But we find that each kind of policy helps solve the other kind's problem. The first-best can be achieved despite the inevitability of some ex post monetary accommodation to fiscal profligacy, without the need for fiscal coordination, without the need for monetary commitment, without the need for a conservative central bank, and irrespective of whether the fiscal or the monetary authorities have the first move.

JEL Classification: F33, F42

Suggested Citation

Dixit, Avinash K. and Lambertini, Luisa, Symbiosis of Monetary and Fiscal Policies in a Monetary Union (August 13, 1999). Journal of International Economics, Vol. 60, No. 2, 2003. Available at SSRN: https://ssrn.com/abstract=203628 or http://dx.doi.org/10.2139/ssrn.203628

Avinash K. Dixit

Princeton University - Department of Economics ( email )

Princeton, NJ 08544-1021
United States
609-258-4000 (Phone)
609-258-6419 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Luisa Lambertini (Contact Author)

Ecole Polytechnique Fédérale de Lausanne ( email )

Odyssea
Station 5
Lausanne, 1015
Switzerland

Register to save articles to
your library

Register

Paper statistics

Downloads
318
Abstract Views
1,887
rank
94,616
PlumX Metrics