Fiscal and monetary rules for a currency union

• 成果类型: Article
• 署名作者: Ferrero, Andrea
• 署名单位: Federal Reserve System - USA; Federal Reserve Bank - New York
• 刊物名称: JOURNAL OF INTERNATIONAL ECONOMICS
• ISSN/ISSBN: 0022-1996
• DOI: 10.1016/j.jinteco.2008.09.004
• 发表日期: 2009
• 页码: 1-10
• 关键词: Currency union; optimal policy; flexibility; welfare

摘要

This paper addresses the optimal joint conduct of fiscal and monetary policy in a two-country model of a currency union with staggered price setting and distortionary taxes. A tractable linear-quadratic approximation permits a representation of the optimal policy plan in terms of targeting rules. In the optimal equilibrium, monetary policy should achieve aggregate price stability following a flexible inflation targeting rule. Fiscal policy should stabilize idiosyncratic shocks allowing for permanent variations of government debt but should abstain from creating inflationary expectations at the union level. Simple policy rules can approximate the optimal commitment benchmark through a mix of strict inflation targeting and flexible budget rules. Conversely, the welfare costs of balanced budget rules are at least one order of magnitude higher than conventional estimates of the costs of business cycle fluctuactions. (c) 2008 Elsevier B.V. All rights reserved.