Potential Output and Fiscal Rules in a Monetary Union under Asymmetric Information - 2nd ed

Marattin, Luigi ; Meraglia, Simone (2016) Potential Output and Fiscal Rules in a Monetary Union under Asymmetric Information - 2nd ed. Bologna: Dipartimento di Scienze economiche DSE, p. 30. DOI 10.6092/unibo/amsacta/5071. In: Quaderni - Working Paper DSE (1063). ISSN 2282-6483.

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Abstract

We analyze fiscal rules within a Monetary Union in the presence of (i) asymmetric information on member states’ potential output and (ii) bail-out among member states. The first-best deficit is contingent on the cycle, that is, on member states’ output gap. In the presence of asymmetric information and bailout, the first-best deficit is not implementable. Bail-out lowers the scope for signalling (discrimination) by member states (lenders) and induces overborrowing by member states characterized by a low output gap. The Monetary Union can design a mechanism such that a member state with a smaller negative output gap runs an optimal budget deficit upon receiving a transfer form the Union. We show that, this ‘cyclically-contingent’ fiscal framework Pareto dominates the ‘cyclically-adjusted’ fiscal rule currently enforced by the European Monetary Union. Our model can then account for a situation where both asymmetric information over cyclical positions and the presence of bail-out among member states does not induce borrowing distortions.

Abstract
Tipologia del documento
Monografia (Working paper)
Autori
AutoreAffiliazioneORCID
Marattin, Luigi
Meraglia, Simone
Parole chiave
Monetary Union, Potential Output, Output Gap, Asymmetric Information, Bail-Out, Fiscal Rules
Settori scientifico-disciplinari
ISSN
2282-6483
DOI
Data di deposito
20 Apr 2016 12:14
Ultima modifica
20 Apr 2016 12:14
URI

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