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Fiscal Devaluations in a Monetary Union and the Extensive Margin of Trade

Author

Listed:
  • Stéphane Auray

    (CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - X - École polytechnique - IP Paris - Institut Polytechnique de Paris - ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique - CNRS - Centre National de la Recherche Scientifique)

  • Aurélien Eyquem

    (GATE Lyon Saint-Étienne - Groupe d'Analyse et de Théorie Economique Lyon - Saint-Etienne - ENS de Lyon - École normale supérieure de Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - UJM - Université Jean Monnet - Saint-Étienne - CNRS - Centre National de la Recherche Scientifique)

  • Xiaofei Ma

    (CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - X - École polytechnique - IP Paris - Institut Polytechnique de Paris - ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique - CNRS - Centre National de la Recherche Scientifique)

Abstract

We quantify the effects of fiscal devaluations within a monetary union model with endogenous entry and endogenous tradability. First, unilateral fiscal devaluations have large and permanent positive effects for countries that implement such policies, as they increase hours worked, consumption, GDP and produced varieties. Second, as the model supports positive cross-country comovements of GDP and consumption through endogenous tradability and the expansion of the trade sector, unilateral fiscal devaluations are not beggar-thy-neighbor policies. We find positive spillovers to other members of the monetary union in terms of economic activity as well as in terms of welfare. Both results stand in contrast with respect to the existing literature and suggest that fiscal devaluation is an efficient and non-aggressive policy option for governments that belong to a monetary union
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Stéphane Auray & Aurélien Eyquem & Xiaofei Ma, 2015. "Fiscal Devaluations in a Monetary Union and the Extensive Margin of Trade," Post-Print halshs-01232243, HAL.
    • Handle: RePEc:hal:journl:halshs-01232243
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    Keywords

    endogenous varieties; taxes; monetary union; Fiscal devaluations; endogenous tradability;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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