Optimal monetary and fiscal policy in a currency union with frictional goods markets Gomis-Porqueras, P and Zhang, C 2021, Optimal monetary and fiscal policy in a currency union with frictional goods markets, Macroeconomic Dynamics, vol. 25, no. 7, pp. 1726-1754, doi: 10.1017/S1365100519000841. Attached Files Name Description MIMEType Size Downloads Title Optimal monetary and fiscal policy in a currency union with frictional goods markets Author(s) Gomis-Porqueras, P Zhang, C Journal name Macroeconomic Dynamics Volume number 25 Issue number 7 Start page 1726 End page 1754 Total pages 29 Publisher Cambridge University Press Place of publication Cambridge, Eng. Publication date 2021-10 ISSN 1365-1005 1469-8056 Keyword(s) Business & Economics Currency Unions Economics MODEL MONEY Optimal Monetary and Fiscal Policy Search Frictions Social Sciences TRADE Summary We develop an open economy model of a currency union with frictional goods markets and endogenous search decisions to study optimal monetary and fiscal policy. Households finance consumption with a common currency and can search for locally produced goods across regions that differ in their market characteristics. Equilibrium is generically inefficient due to regional spillovers from endogenous search decisions. While monetary policy alone cannot correct this distortion, fiscal policy can help improve allocations by taxing or subsidizing production at the regional level. When households of only one region can search, optimal policy entails a deviation from the Friedman rule and a production subsidy (tax) if there is underinvestment (overinvestment) in search decisions. Optimal policy when households from both region search requires the Friedman rule and zero production taxes in both regions. Language eng DOI 10.1017/S1365100519000841 Field of Research 1401 Economic Theory 1402 Applied Economics 1403 Econometrics HERDC Research category C1 Refereed article in a scholarly journal Persistent URL http://hdl.handle.net/10536/DRO/DU:30159666 Document type: Journal Article Collections: Faculty of Business and Law Department of Economics Related Links Link Description Connect to published version Go to link with your DU access privileges   Connect to Elements publication management system Go to link with your DU access privileges     Unless expressly stated otherwise, the copyright for items in DRO is owned by the author, with all rights reserved. Versions Version Filter Type Mon, 29 Nov 2021, 14:10:55 EST Mon, 29 Nov 2021, 15:06:59 EST Tue, 30 Nov 2021, 11:24:17 EST Tue, 30 Nov 2021, 15:01:00 EST Thu, 17 Mar 2022, 13:56:08 EST Thu, 17 Mar 2022, 15:04:20 EST Thu, 17 Mar 2022, 15:05:22 EST Thu, 17 Mar 2022, 15:08:04 EST Filtered Full Citation counts:   Cited 2 times in TR Web of Science Cited 1 times in Scopus Search Google Scholar Access Statistics: 9 Abstract Views, 1 File Downloads  -  Detailed Statistics Created: Tue, 30 Nov 2021, 11:24:17 EST