Regional inflation in a currency union
Subtitle: fiscal policy vs. fundamentals
By: Margarida Duarte and Alexander L. Wolman.
Contributors: Wolman, Alexander L.
Series: International finance discussion papers ;; no. 746; International finance discussion papers (Online) ;; no. 746.
Publisher: Federal Reserve Board
Published: 2002
Place of publication: Washington, D.C
Language: eng
Format: Electronic resource
Description: "We develop a general equilibrium model of a two-region currency union.  There are two types of goods: non-trade goods, and traded goods for which markets are segmented.  Monetary policy is set by a central monetary authority and is non-neutral due to nominal price rigidities.  Fiscal policy is determined at the regional level by each region's government.  We find that productivity shocks alone generate significant variation in inflation across the two countries.  Government spending shocks, in contrast, do not account for a significant portion of inflation variation.  Varying relative country size, we find that smaller countries experience higher variability of their inflation differential in response to shocks to productivity growth.  Moreover, we show that regional governments can suppress incipient inflation differentials associated with shocks to productivity growth by letting the income tax rate respond negatively to inflation differentials"--Federal Reserve Board web site.
Notes: Also available in print.
Includes bibliographical references.
Title from PDF file as viewed on 10/7/2004.
System requirements: Adobe Acrobat Reader.
Mode of access: World Wide Web.