Fiscal Consolidation in the Euro Area: Long-Run Benefits and Short-Run Costs
In: ECB Working Paper No. 902
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In: ECB Working Paper No. 902
SSRN
In: Occasional paper series 78
In: Journal of international economics, Band 99, S. 85-104
ISSN: 0022-1996
We use a version of the New Area-Wide Model (NAWM) developed at the ECB in order to quantify the gains from monetary policy cooperation. The model is calibrated in order to match a set of empirical moments. We then derive the cooperative and (open-loop) Nash monetary policies, assuming that the central banks' objectives is to maximize the welfare of the households. Our results show that given the current degree of openness of the US and euro area economies, the gains from monetary policy coordination are small, amounting to 0.03 percent of steady-state consumption. Nevertheless, the gains appear to be sensitive to the degree of openness and further economic integration between the two regions could generate sizable gains from cooperation. For example, increasing the trade shares to 32 percent of GDP in both regions, the gains from cooperation rise to about 1 percent of steady-state consumption. By decomposing the sources of the gains from cooperation with respect to the various shocks, we show that mark-up shocks are the most important source for gains from international monetary policy cooperation.
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In: ECB Occasional Paper No. 78
SSRN
In: International Dimensions of Monetary Policy, S. 157-196
In: NBER Working Paper No. w18052
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In: ECB Working Paper No. 1456
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In: ECB Occasional Paper No. 110
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Working paper
In: Occasional paper series 110