Monetary and fiscal policy interaction in the enlarging European Economic and Monetary Union ; Essays on business cycles and welfare ; Interaktion von Geld- und Fiskalpolitik in der sich erweiternden Wirtschafts- und Währungsunion ; Aufsätze zu Konjunktur und Wohlfahrt
This essay-based dissertation determines the contribution of monetary and fiscal policy to limit business-cycle costs in the current and enlarged euro area that derive from interactions between supranational monetary policy and national fiscal policies on the one hand and from the requirement of complying with the Maastricht criteria for new EU member states on the other. Research questions are evaluated within dynamic general equilibrium based on the paradigm of the New Open Economy Macroeconomics. It is taken into account that empirically-consistent modelling of gross value added should feature both the production of goods and services. Chapter 2 addresses and quantifies business- cycle related welfare costs that arise from differences in macroeconomic structures and shock exposure between member states in the euro area evaluated within a two-region two-sector sticky-price currency union model. The official monetary policy stance of the Eurosystem is targeted at maintaining price stability in the union-wide harmonised index of consumer prices such that there is a one-for-one relationship between region size and weight in monetary policy. In our model, targeting aggregates only will however not provide the welfare-maximising policy and heterogeneity between member states should instead be taken into account. Besides economic size, also sectoral price setting of firms and both the sectoral decomposition of gross value added and the structure of expenditures will turn out to be crucial. Especially, nominal rigidity will no longer be sufficient for determining the optimal weight a region should have in joint monetary policy. Our results indicate that current monetary policy that targets euro area-wide aggregates only is associated with losses of about 0.5% of long-run consumption per period. Losses could be reduced by more than 55% if heterogeneity between members would be taken into account in interest rate setting. With regard to structural reform options, highest priority should be given to flexibilising price ...
