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Article dans une revue Review of Economic Studies Année : 2004

Overturning Mundell : Fiscal policy in a monetary union

Résumé

Central to ongoing debates over the desirability of monetary unions is a supposed trade-off, outlined by Mundell (1961): a monetary union reduces transactions costs but renders stabilization policy less effective. If shocks across countries are sufficiently correlated, then, according to this argument, delegating monetary policy to a single central bank is not very costly and a monetary union is desirable.
This paper explores this argument in a setting with both monetary and fiscal policies. In an economy with monetary policy alone, we confirm the presence of the trade-off and find that indeed a monetary union will not be welfare improving if the correlation of national shocks is too low. However, fiscal interventions by national governments, combined with a central bank that has the ability to commit to monetary policy, overturn these results. In equilibrium, such a monetary union will be welfare improving for any correlation of shocks.
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Dates et versions

halshs-00266420, version 1 (22-03-2008)

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Russell Cooper, Hubert Kempf. Overturning Mundell : Fiscal policy in a monetary union. Review of Economic Studies, 2004, 71 (2), pp.371-396. ⟨10.1111/0034-6527.00288⟩. ⟨halshs-00266420⟩
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