Cambridge-INET Working Papers - Abstracts | The Cambridge-INET Institute

Macroeconomic Stabilization, Monetary-fiscal Interactions, and Europe's monetary Union

WP Number: 1627

Abstract: The euro area has been experiencing 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: Lower Bound on Nominal Interest Rates, Self-fulfilling Sovereign Default, Eurobond, Government Bonds' Joint Analysis of Fiscal and Monetary Policy

JEL Codes: E31 E62 E63