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The Cambridge-INET Institute - continuing as the Janeway Institute

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Corsetti, G., Dedola, L., Jarocinski, M., Mackowiak, B., and Schmidt, S.

Macroeconomic stablization, monetary-fiscal interactions, and Europe's monetary union

European Journal of Political Economy

Vol. 57 pp. 22-33 (2018)

Abstract: The euro area recently experienced a prolonged period of weak economic activity and very low inflation. This paper reviews models of business cycle stabilization with an eye to formulating lessons for policy in the euro area. According to standard models, after a large recessionary shock accommodative monetary and fiscal policy together may be necessary to stabilize economic activity and inflation. The paper describes practical ways for the euro area to be able to implement an effective monetary-fiscal policy mix.

Keywords: Eurobond, Government bonds, Joint analysis of fiscal and monetary policy, Lower bound on nominal interest rates, Self-fulfilling sovereign default

JEL Codes: E31, E62, E63

Author links: Giancarlo Corsetti  

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Theme: 1