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Fiscal policy, monetary regimes and current account dynamics

Title data

Herz, Bernhard ; Hohberger, Stefan:
Fiscal policy, monetary regimes and current account dynamics.
In: Review of International Economics. Vol. 21 (2013) Issue 1 . - pp. 118-136.
ISSN 1467-9396
DOI: https://doi.org/10.1111/roie.12024

Official URL: Volltext

Abstract in another language

For the individual European Monetary Union (EMU) members fiscal policy has gained in importance owing to the loss of monetary policy as an autonomous policy instrument. Based on a small open economy dynamic stochastic general equilibrium (DSGE) model with fiscal feedback rules, we analyze the dynamic macroeconomic response in particular of the current account under alternative exchange rate regimes. Our results indicate that entry into monetary union makes the economy more vulnerable to a productivity shock and leads to higher variability of the current account. For a risk premium shock, an entry into EMU implies lower variability of most macroeconomic variables, but a higher persistence in the adjustment process of the current account. For both shocks, a countercyclical fiscal response to the current account is more stabilizing for most macroeconomic variables than a conventional countercyclical response to output. Stabilizing the current account comes at the price of higher variability of output in the short-run, however.

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 08:10
Last Modified: 31 Mar 2015 08:10
URI: https://eref.uni-bayreuth.de/id/eprint/9524