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Optimal Monetary And Fiscal Policy In The EMU: Does Fiscal Policy Coordination Matter?

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Executive Summary

The author develops and analyzes a DSGE model of a currency union to revise the question of how to conduct monetary and fiscal policy in countries that share the same currency. In contrast with the previous literature which assumes coordination, this paper analyzes the case where coordination lacks among fiscal authorities as well as between fiscal and monetary authorities. The author shows that the normative prescriptions emphasized by former analyses are not valid any more once policymakers are not coordinated.

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