• Graduate Program
  • Research
  • Browse our Courses
  • Events
    • Events Calendar
    • Events Archive
    • Tinbergen Institute Lectures
    • Summer School
      • Deep Learning
      • Economics of Blockchain and Digital Currencies
      • Foundations of Machine Learning with Applications in Python
      • Marketing Research with Purpose
      • Modern Toolbox for Spatial and Functional Data
      • Sustainable Finance
      • Tuition Fees and Payment
      • Tinbergen Institute Summer School Program
    • Annual Tinbergen Institute Conference archive
  • News
  • Summer School
    • Deep Learning
    • Economics of Blockchain and Digital Currencies
    • Foundations of Machine Learning with Applications in Python
    • Marketing Research with Purpose
    • Modern Toolbox for Spatial and Functional Data
    • Sustainable Finance
  • Alumni

Beetsma, R. and Bovenberg, A. (2003). Strategic debt accumulation in a heterogeneous monetary union European Journal of Political Economy, 19(1):1--15.

  • Journal
    European Journal of Political Economy

This paper explores the interaction between centralized monetary policy and decentralized fiscal policy in a monetary union with heterogeneous countries. Discretionary monetary policy suffers from a failure to commit. Moreover, heterogeneous decentralized fiscal policymakers impose externalities on each other through the influence of their debt policies on the common monetary policy. These imperfections can be alleviated by adopting shock-contingent inflation targets (to combat the monetary policy commitment problem) and shock-contingent debt targets (to internalize the externalities due to decentralized fiscal policy).