Departmental Bulletin Paper Theoretical Analysis of the Effect of Fiscal Union: Keynesian Two-Country Model

中尾 将人

In this paper, we investigate the effect of fiscal union related to a Capital Markets Union for the euro area in a Keynesian two-country model with a monetary union and imperfect capital mobility.We find that the increase in capital mobility between countries by creating a Capital Markets Union is a destabilizing factor, whereas an increase in fiscal transfers by creating a fiscal union is a stabilizing factor.Furthermore, we also find that an expansionary monetary policy implemented by the European Central Bank and an expansionary fiscal policy have positive effects on the real national income of both core and periphery countries.

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