Coordination of policies in a monetary union - fiscal and monetary policies in dynamic stochastic general equilibrium models

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Freiburg i. Br., Univ., Diss., 2012

Zsfassung in dt. Sprache

Enth. 3 Beitr.

Fiscal policy has played a minor role business cycle theory for some time. The consensus prevailed that monetary policy was sufficient to stabilize an economy. But with the long lasting liquidity trap in Japan in the 1990s, the introduction of the European Monetary Union in 1999, and the recent Great Recession of 2008-2009 fiscal policy has regained more importance. With nominal interest rates near zero, or monetary policy just focusing on aggregate shocks, fiscal stimulus packages might be a better tool to boost an economy after a downturn. Research based on the framework of New Keynesian dynamic stochastic general equilibrium (DSGE) models has already answered questions concerning the strategic interaction of fiscal and monetary policies. However, within this class of models the analysis has to be extended to the setup of a monetary union and the case that policies are not coordinated. My dissertation fills this gap in the literature providing three theoretical papers. The first one concentrates on solution strategies for dynamic stochastic general equilibrium models in general. Necessary steps in the solution procedure are described and literature is provided to work with this class of models in detail. The second paper implements the solution strategies and analyzes the interaction of fiscal and monetary policy in a two-country New Keynesian model of a currency union. Two independent national governments interact strategically with a common central bank to cope with several disturbances hitting the monetary union. All policymakers decide on discretionary optimal policy. Analytical solutions to different games (simultaneous setting of instruments, leadership equilibria and full coordination) are computed. The role of spillovers between both countries is emphasized. The third paper extends the analysis of the previous paper to the case that the monetary union is in a liquidity trap, that is, the central bank cannot react to shocks adjusting the nominal interest rate. The paper complements and extends the literature on fiscal multipliers under the zero lower bound (ZLB) constraint of the nominal interest rate. The size of the fiscal multipliers depends on the intraunion competitiveness channels. Given that the ZLB holds, it is further explored whether governments should coordinate their instruments or set them simultaneously.

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Parallelt.: Politikkoordination in einer Währungsunion - Fiskal- und Geldpolitik in dynamischen stochastischen allgemeinen Gleichgewichtsmodellen

Übers. des Hauptsacht.: Politikkoordination in einer Währungsunion - Fiskal- und Geldpolitik in dynamischen stochastischen allgemeinen Gleichgewichtsmodellen

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