Optimal monetary and fiscal policy in a currency union with nontradables

@inproceedings{Okano2010OptimalMA,
  title={Optimal monetary and fiscal policy in a currency union with nontradables},
  author={Eiji Okano},
  year={2010}
}
By constructing a dynamic stochastic general equilibrium (DSGE) model, this paper verifies the necessity for an optimal monetary and fiscal policy under a currency union with non-tradable goods. An optimal monetary policy alone can maximize social welfare through stabilizing the producer price inflation and output gap in each country simultaneously when all goods are tradable. However, a solitary optimal monetary policy cannot maximize social welfare because of the Balassa-Samuelson Theorem… CONTINUE READING

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