Series: Working Papers. 1540.
Author: Óscar Arce, Samuel Hurtado and Carlos Thomas.
Topics: Structural reforms | Monetary policy | Economic and Monetary Union | Household finances | Credit.
Published in: International Journal of Central Banking, 12(3), September 2016.
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Abstract
We provide a general equilibrium framework for analysing the effects of supply- and demandside 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.