Insulation Impossible: Fiscal Spillovers in a Monetary Union / Russell Cooper, Hubert Kempf, Dan Peled.

Format:

Book

Author/Creator:

Cooper, Russell.

Contributor:

National Bureau of Economic Research.

Kempf, Hubert.

Peled, Dan.

Series:

Working Paper Series (National Bureau of Economic Research) no. w15176.

NBER working paper series no. w15176

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Insulation Impossible

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2009.

Summary:

This paper studies fiscal spillovers in a monetary union. The focus of the analysis is on the interaction between the fiscal policy of member countries (regions) and the central monetary authority. When capital markets are integrated, the fiscal policy of one country will influence equilibrium wages and interest rates. Thus there are fiscal spillovers within a federation. The magnitude and direction of these spillovers, in particular the presence of a crowding out effect, can be influenced by the choice of monetary policy rules. We find that there does not exist a monetary policy rule which completely insulates agents in one region from fiscal policy in another. Some familiar policy rules, such as pegging an interest rate, can provide partial insulation.

Notes:

Print version record

July 2009.