The seminar will be held in the Visitor Centre at 3:15 pm
Chiara Forlati (EPFL, Lausanne)
Abstract
I develop a DSGE model to revise the question of how to conduct monetary and fiscal policy in a currency union. In contrast with the recent literature which assumes coordination, this paper analyzes the case of no-coordination either among fiscal authorities or between fiscal and monetary authorities. I show that the normative prescriptions emphasized by previous analyzes are not valid any more once policymakers are not coordinated. Indeed, in this case on the hand, the common central bank should take into account the distortions caused by the independent fiscal authorities. As a consequence, it is not optimal to stabilize the average union inflation as if the currency union were a closed economy. On the other hand, if there isn't a common agreement to coordinate fiscal policies, autonomous government should use the government expenditure as a stabilization tool even if shocks are symmetric.
Keywords: Monetary and Fiscal Policy, Policy Coordination, Terms of Trade.