Abstract
The consequences of monetary unification for macroeconomic stabilization against asymmetric disturbances to national demands or supplies are analyzed in a general equilibrium model of an international monetary economy. Households and firms form optimal consumption, portfolio, investment and production plans in the presence of shocks to technologies and nominal money demands. The nominal exchange rate regime affects real economic performance because short-run nominal wage rigidity is assumed (the labor market does not clear in general). The effects of public debt are analyzed by using an overlapping generations economy. The paper displays the consequences for macroeconomic stabilization of foregoing nominal exchange flexibility under a common monetary policy and discusses the role of national fiscal policies with and without independent national monetary policies. The paper concludes by arguing that international fiscal transfers do not necessarily augment the capacity of fiscal policies to substitute for separate monetary policies under perfectly flexible nominal exchange rates.
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Kletzer, K.M., Buiter, W.H. (1997). Monetary Union and the Role of Automatic Stabilizers. In: Hairault, JO., Hénin, PY., Portier, F. (eds) Business Cycles and Macroeconomic Stability. Springer, Boston, MA. https://doi.org/10.1007/978-1-4615-6173-6_5
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DOI: https://doi.org/10.1007/978-1-4615-6173-6_5
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