Monetary and Fiscal Policy Efficiency and Coordination in an Open-Economy General Equilibrium Model with Three Production Sectors

Gilbert Koenig and Irem Zeyneloglu ()

Working Papers of BETA from Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg

Abstract: The paper analyzes monetary and fiscal policy efficiency and coordination in a stochastic new open economy macroeconomics (NOEM) model with three production sectors. Some or all of these sectors can be affected by unanticipated productivity shocks which can trigger monetary and fiscal policy reactions. The uncertainty over the shocks can be symmetric or asymmetric across the two countries. The paper first aims to assess the capacity of fiscal and monetary policy to reduce or eliminate the negative effects of unanticipated productivity shocks. Second, it evaluates the possible gains from international monetary cooperation as well as the impact of active fiscal policy on monetary policy efficiency. The results show that monetary and fiscal policies are efficient tools of stabilization and under several conditions they can replicate the flexible-price equilibrium. However, their efficiency is not necessarily increased when both monetary and fiscal policies react to shocks at the national level. The existence of bilateral gains from monetary cooperation depends on the degree of asymmetry concerning the uncertainty over the shocks. In case of high asymmetry, monetary cooperation can be counter-productive either for the home or for the foreign country.

Keywords: Stabilization; international policy cooperation; monetary policy; fiscal policy. (search for similar items in EconPapers)
JEL-codes: E63 F41 F42 (search for similar items in EconPapers)
Date: 2008
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon and nep-opm
References: Add references at CitEc
Citations:

Downloads: (external link)
http://beta.u-strasbg.fr/WP/2008/2008-05.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ulp:sbbeta:2008-05

Access Statistics for this paper

More papers in Working Papers of BETA from Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg Contact information at EDIRC.
Bibliographic data for series maintained by ( this e-mail address is bad, please contact ).