## Shared Problem, Shared Solution: Benefits from Fiscal-Monetary Interactions in the Euro Area

_IMF Working Papers, July 21, 2023_

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**Canonical URL:** [Shared Problem, Shared Solution: Benefits from Fiscal-Monetary Interactions in the Euro Area](https://www.imf.org/en/publications/wp/issues/2023/07/21/shared-problem-shared-solution-benefits-from-fiscal-monetary-interactions-in-the-euro-area-535900)

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## Bibliographic details
- Authors: Robert C. M. Beyer, Rupa Duttagupta, Alexandra Fotiou, Keiko Honjo, Mark A Horton, Zoltan Jakab, Vina Nguyen, Rafael A Portillo, Jesper Lindé, Nujin Suphaphiphat, Li Zeng
- Published: July 21, 2023
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798400249051.001

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### Analytical approach
- Employs two established macroeconomic models to evaluate interactions between fiscal and monetary policy in the euro area.
- Focuses on union-wide fiscal consolidation scenarios and their effects on policy interest rates, inflation, output, public debt, and financial fragmentation risks.

### Key quantitative findings
- A fiscal consolidation of 1 percent of GDP for two years and 0.5 percent in the third year across the euro area:
  - Would ease the policy interest rate by 30-50 basis points relative to the baseline scenario.
  - Would lower inflation (magnitude described qualitatively in the source).
  - Would put the public debt-to-GDP ratio on a downward path.
  - Would have output costs that reverse after the second year.
- Stronger fiscal contribution to the policy mix could mitigate financial fragmentation risks.

### Implications for policy and outcomes
- Synchronized fiscal and monetary policies offer gains even when monetary policy is unconstrained.
- Sharing the burden of lowering inflation through fiscal consolidation among euro area members:
  - Is beneficial for union-wide inflation reduction.
  - Improves debt sustainability.
  - Induces a lower policy rate path.

### Subject tags and keywords (as provided)
- Subject: Fiscal consolidation, Fiscal policy, Fiscal stance, Inflation, Prices, Public debt
- Keywords: Annex I. Policy synchronization; Fiscal consolidation; fiscal policy; fiscal policy in the euro area; Fiscal stance; Global; Inflation; inflation reduction; monetary policy; monetary policy interaction; policy coordination; Policy mix; synchronized fiscal policy

### Publication metadata (selected)
- Pages: 27
- Volume: 2023
- Issue: 149
- Series: Working Paper No. 2023/149
- DOI: https://doi.org/10.5089/9798400249051.001
- ISBN: 9798400249051
- ISSN: 1018-5941

*Source: "Shared Problem, Shared Solution: Benefits from Fiscal-Monetary Interactions in the Euro Area", Robert C. M. Beyer; Rupa Duttagupta; Alexandra Fotiou; Keiko Honjo; Mark A Horton; Zoltan Jakab; Vina Nguyen; Rafael A Portillo; Jesper Lindé; Nujin Suphaphiphat; Li Zeng; IMF Working Papers, July 21, 2023.*

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_Source: https://www.imf.org/en/publications/wp/issues/2023/07/21/shared-problem-shared-solution-benefits-from-fiscal-monetary-interactions-in-the-euro-area-535900_