Macroeconomic Imbalances, Inflation Expectations and Fiscal Policy within a Monetary Union
The project concentrates on the causes and consequences of macroeconomic imbalances within a monetary union. It develops a theoretical model in which persistent current account deficits are driven by heterogeneity in inflation expectations across countries. The findings of the model are consistent with empirical patterns in the Eurozone. The project explores also the role that fiscal policy could play in preventing the build-up of imbalances. Furthermore, taking the existing macroeconomic imbalances and fiscal weaknesses as given, we analyze optimal fiscal policy rules in a monetary union at the zero lower bound.