Working Paper

Sustainable Price Stability Policies in a Currency Area with Free-Riding Fiscal Policies

• A game of strategic interaction among

policy makers in a currency area

a) Single monetary authority and several

fiscal authorities

b) An infinite horizon micro-founded

multiple country model

• Nominal government bonds → temptations

to monetize debt (inflationary bias)

• Liquidity constraints → welfare costs

of inflation (equally shared among area

members)

• Sequential policy moves →government

expenditure bias

Author

Ester Faia

Info

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