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Monetary Policy and Asymmetrical Fiscal Policy in a Jointly Floating Currency Area

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  • Lawler, Phillip

Abstract

The paper provides a representation of a currency area comprising two small countries whose currencies float jointly with respect to the rest of the world. The model is employed to examine the consequences of a fiscal expansion by one of the two participants, the 'center country,' which is also assumed to dictate currency area monetary policy and direct it purely at its own objectives of price and output stability. We find that achievement of center country objectives may require either a rise or fall in the currency are nominal interest rate but, regardless of the appropriate direction of monetary policy, is necessarily associated with a recession in the second country. Copyright 1994 by Scottish Economic Society.

Suggested Citation

  • Lawler, Phillip, 1994. "Monetary Policy and Asymmetrical Fiscal Policy in a Jointly Floating Currency Area," Scottish Journal of Political Economy, Scottish Economic Society, vol. 41(2), pages 142-162, May.
    • Handle: RePEc:bla:scotjp:v:41:y:1994:i:2:p:142-62
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    Cited by:

    1. van Aarle, Bas & Garretsen, Harry & van Moorsel, Cornelie, 2001. "Internal and external transmissions of monetary and fiscal policies in the EMU," Economic Systems, Elsevier, vol. 25(2), pages 127-148, June.

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