| Authors | R.M.W.J. Beetsma, A.L. Bovenberg |
| Title | Strategic debt accumulation in a heterogeneous monetary union |
| Journal | European Journal of Political Economy |
| Volume | 19 |
| Year | 2003 |
| Issue | 1 |
| Pages | 1-15 |
| ISSN | 0176-2680 |
| Faculty | Faculty of Economics and Business |
| Institute/dept. | FEB: Research Institute in Economics and Econometrics Amsterdam (RESAM) |
| Keywords | Fiscal policy; Monetary policy; Decentralization in government |
| Classification | E52; E58; E61; E62 |
| Abstract | This paper explores the interaction between centralized monetary policy and decentralized fiscal policy in a monetary union with heterogeneous countries. Discretionary monetary policy suffers from a failure to commit. Moreover, heterogeneous decentralized fiscal policymakers impose externalities on each other through the influence of their debt policies on the common monetary policy. These imperfections can be alleviated by adopting shock-contingent inflation targets (to combat the monetary policy commitment problem) and shock-contingent debt targets (to internalize the externalities due to decentralized fiscal policy). |
| Document type | Article |
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