Monetary Conservatism and Fiscal Coordination in a Monetary Union
8 Pages Posted: 13 Feb 2006
In a monetary union time inconsistency provides the rationale for central bank conservativeness and against the coordination of national fiscal policies. We show that this result is based on the implicit assumption of exogenous labor markets and that, once wage setters' behavior is explicitly modelled, the economic performance can be improved by fiscal policy coordination and a less conservative monetary policy stance.
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