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Fiscal Stabilization in the EMU
Author(s) -
Aarle Bas van,
Garretsen Harry
Publication year - 2000
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/1467-9396.00254
Subject(s) - stylized fact , economics , business cycle , fiscal policy , wage , stabilization policy , macroeconomics , monetary economics , monetary policy , western hemisphere , international economics , labour economics
This paper analyzes the effects of macroeconomic shocks in the Economic and Monetary Union (EMU) using a stylized two‐country model. First, it is shown how asymmetries between countries might matter in terms of the resulting business cycle fluctuations. More specifically, country‐specific shocks are allowed for as well as cross‐national differences in wage behavior. Second, it is shown by means of numerical simulations how national and federal fiscal stabilization policies can be used to dampen business cycle fluctuations in various (a)symmetric settings. The main innovation of the paper is to illustrate how structural differences between countries help to determine the impact of macroeconomic shocks and the effectiveness of fiscal policy.