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The performance of simple fiscal policy rules in monetary union

Title data

Vogel, Lukas ; Roeger, Werner ; Herz, Bernhard:
The performance of simple fiscal policy rules in monetary union.
In: Open Economies Review. Vol. 24 (2013) Issue 1 . - pp. 165-196.
ISSN 0923-7992
DOI: https://doi.org/10.1007/s11079-012-9258-0

Official URL: Volltext

Abstract in another language

The paper analyses the stabilising potential of simple fiscal policy rules for a small open economy in monetary union in a 2-region DSGE model with nominal and real rigidities. We consider simple fiscal instrument rules for government purchases, transfers, and consumption, labour and capital taxes in analogy to interest rate rules in monetary policy. The paper finds a dichotomy in the welfare effects of fiscal policy for liquidity-constrained and intertemporal optimising households, i.e. policies enhancing the welfare of one group tend to reduce the welfare of the other one. The moderate average welfare gains from optimal policy contrast with potentially large welfare losses from non-optimal policy. Fiscal rules that respond to employment fluctuations may be preferred to fiscal rules responding to indicators of price competitiveness, because optimal policy corresponds more closely to the idea of countercyclical stabilisation in the former case. The simulations also emphasise the crucial impact of the budgetary closure rule on the welfare consequences of fiscal business-cycle stabilisation.

Further data

Item Type: Article in a journal
Refereed: Yes
Institutions of the University: Faculties > Faculty of Law, Business and Economics > Department of Economics > Chair Economics I > Chair Economics I - Univ.-Prof. Dr. Bernhard Herz
Faculties
Faculties > Faculty of Law, Business and Economics
Faculties > Faculty of Law, Business and Economics > Department of Economics
Faculties > Faculty of Law, Business and Economics > Department of Economics > Chair Economics I
Result of work at the UBT: Yes
DDC Subjects: 300 Social sciences > 330 Economics
Date Deposited: 31 Mar 2015 07:28
Last Modified: 31 Mar 2015 07:28
URI: https://eref.uni-bayreuth.de/id/eprint/9522