Fiscal policies coordination in a Monetary Union model

Abstract

This dissertation examines the way in which the member countries of a monetary union respond to specific shocks and those coming from the rest of the world, when the public deficit is the only policy instrument. We have developed a model of three countries that show different preferences regarding their objective and suffering asymmetric perturbations. Analysing how optimally coordinated fiscal policies differ from non-cooperative policies, we have obtained five stages of cooperation among countries. Finally, we have discussed the welfare aspects of the optimal solution and to what extent a common fiscal policy may influence the structure and evolution of the monetary union.