September 2016 issue contents
Policy spillovers and synergies in a monetary union

by Óscar Arce, Samuel Hurtado and Carlos Thomas
Banco de España


We provide a general equilibrium framework for analyzing the effects of supply- and demand-side policies, and the potential synergies between them, in an asymmetric monetary union that faces a liquidity trap and a slow deleveraging process in its "periphery." We find that the joint implementation of pro-competition structural reforms in the periphery, a fiscal expansion in the "core," and forward guidance about the future path of nominal interest rates produces positive synergies between the three policies: forward guidance reinforces the expansionary effects of country-specific policies, and the latter in turn improve the effectiveness of forward guidance. Our results provide a case for complementing current unconventional monetary stimuli in the euro area with national efforts on the structural reform and fiscal fronts.

JEL Codes: E44, E63, D42.

Full article (PDF, 59 pages, 5836 kb) 
Discussion by Andrea Ferrero