In monetary unions time-inconsistency provides the rationale for monetary conservativeness and against fiscal coordination. However, this depends on the assumption of exogenous labor markets. Once wage-setting behavior is explicitly modeled, fiscal coordination and less conservative central bankers improve the performance.
Acocella, N., Di, B., Tirelli, P. (2007). Monetary conservatism and fiscal coordination in a monetary union. ECONOMICS LETTERS, 94(1), 56-63 [10.1016/j.econlet.2006.08.002].
Monetary conservatism and fiscal coordination in a monetary union
TIRELLI, PATRIZIO
2007
Abstract
In monetary unions time-inconsistency provides the rationale for monetary conservativeness and against fiscal coordination. However, this depends on the assumption of exogenous labor markets. Once wage-setting behavior is explicitly modeled, fiscal coordination and less conservative central bankers improve the performance.
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