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Fiscal policy coordination in currency unions (at the zero lower bound)

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  • Müller, Gernot Johannes
  • Hettig, Thomas
  • Mueller, Gernot

Abstract

Within currency unions, according to the pre-crises consensus, countries can rely on fiscal policy to stabilize economic activity locally. Monetary policy's role, in turn, is to stabilize economic activity at the union level. Against this background, we reassess the optimal degree of fiscal stabilization within currency union provided that monetary policy is constrained by the zero lower bound on nominal interest rates. Specifically, we contrast the optimal level of government consumption from an individual country's perspective with the optimal level from the union's perspective and explore the need for coordinating expansionary fiscal policies.

Suggested Citation

  • Müller, Gernot Johannes & Hettig, Thomas & Mueller, Gernot, 2015. "Fiscal policy coordination in currency unions (at the zero lower bound)," VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 112826, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc15:112826
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    Cited by:

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    2. David Cook & Michael B Devereux, 2019. "Fiscal Policy in a Currency Union at the Zero Lower Bound," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 51(S1), pages 43-82, December.

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    More about this item

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination

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