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Fiscal and macroprudential policy coordination for stabilization purposes

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  • María Malmierca‐Ordoqui

Abstract

The COVID‐19 pandemic has highlighted the need of maintaining financial and economic stabilization to mitigate the negative effects of the health crisis. In the context of a currency area, national governments count on national fiscal and macroprudential instruments to stabilize their own economy. Through a DSGE model for a monetary union I assess the welfare implications of different macroprudential‐fiscal policy combinations, that are set with stabilization purposes. The findings confirm that for a supply and a demand shock, as the ones responsible for the economic crisis of 2020, the stabilizing policy mix might deteriorate welfare. By contrast, after a financial shock, similar to that of the Great Recession, the stabilizing policy combination strategies always achieve welfare gains.

Suggested Citation

  • María Malmierca‐Ordoqui, 2024. "Fiscal and macroprudential policy coordination for stabilization purposes," Metroeconomica, Wiley Blackwell, vol. 75(4), pages 641-669, November.
  • Handle: RePEc:bla:metroe:v:75:y:2024:i:4:p:641-669
    DOI: 10.1111/meca.12471
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