Published in:De Nederlandsche Bank Working Paper ; No. 524
Extent:
1 Online-Ressource (57 p)
Language:
English
DOI:
10.2139/ssrn.2860072
Identifier:
Origination:
Footnote:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments October 25, 2016 erstellt
Description:
Earlier studies on the equilibrium properties of standard dynamic macroeconomic models have shown that an inflation-targeting central bank imposes strict budgetary requirements on fiscal policy needed to obtain a unique and stable equilibrium. The failure of only one fiscal authority within a monetary union to meet these requirements already results in non-existence of equilibrium and an unstable monetary union. We show that such outcomes can be averted if fiscal authorities can make a credible commitment to switch to more sustainable fiscal regimes in the future. In addition, we illustrate how alternative policy measures, such as fiscal bailouts and debt monetization by the central bank, also broaden the range of policy stances under which monetary unions are stable