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Cross-border spill-overs from fiscal stimulus in a monetary union |
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| Institution: | 1. Helmut-Schmidt-University of Hamburg, Holstenhofweg 85, 22043 Hamburg, Germany;2. DICE, Heinrich-Heine-University of Duesseldorf, Universitaetsstr. 1, 40225 Duesseldorf, Germany;1. Department of Agricultural Economics, Humboldt-Universität zu Berlin, Germany;2. European Commission, Joint Research Centre, Institute for Prospective Technological Studies (IPTS), Spain;3. Institute of Agricultural Policy and Markets (420), Universität Hohenheim, 70593 Stuttgart, Germany;4. Institute of Applied Mathematics and Statistics (110), Universität Hohenheim, 70599 Stuttgart, Germany |
| Abstract: | We analyse domestic and cross-border effects of fiscal policy in a two-region business cycle model of a monetary union. Without relying on debt consolidation via spending reversals along the lines of Corsetti, Meier and Mueller (2010) and Corsetti and Mueller (2014) we show that a fiscal expansion by the core economies of the euro area is associated with crowding in of both core and periphery consumption. Interestingly, cross-border spill-over effects are larger the larger the share of credit constrained households in the periphery. |
| Keywords: | Fiscal policy New-Keynesian model Open economy Monetary union Rule-of-thumb consumers Habit persistence |
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