TY  - JOUR
AU  - Cooper,Russell
AU  - Kempf,Hubert
AU  - Peled,Dan
TI  - Insulation Impossible:  Fiscal Spillovers in a Monetary Union
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 15176
PY  - 2009
Y2  - July 2009
UR  - http://www.nber.org/papers/w15176
L1  - http://www.nber.org/papers/w15176.pdf
N1  - Author contact info:
Russell Cooper
Department of Economics
European University Institute
via della Piazzola, 43
Firenze, 50133
ITALY
E-Mail: russellcoop@gmail.com

Hubert Kempf
Banque de France
and Paris School of Economics
31 rue Croix-des-Petits-Champs
75001 Paris France
E-Mail: kempf@univ-paris1.fr

Dan Peled
Department of Economics
University of Haifa
Haifa 31905, ISRAEL
E-Mail: dpeled@econ.haifa.ac.il
AB  - This paper studies fiscal spillovers in a monetary union. The focus of the analysis is on the interaction between the fiscal policy of member countries (regions) and the central monetary authority. When capital markets are integrated, the fiscal policy of one country will influence equilibrium wages and interest rates. Thus there are fiscal spillovers within a federation. The magnitude and direction of these spillovers, in particular the presence of a crowding out effect, can be influenced by the choice of monetary policy rules. We find that there does not exist a monetary policy rule which completely insulates agents in one region from fiscal policy in another. Some familiar policy rules, such as pegging an interest rate, can provide partial insulation.
ER  -