Ricerc@Sapienza

This research seeks to give an answer to the question of what are the effects of monetary policy measures in a currency union, in an environment where fiscal policy is nation-specific. Put differently, how the absence of a fiscal union affects the propagation of monetary policy shocks. These effects are studied in two dimensions: the first dimension identifies the impact of monetary policy on a union level, i.e. when all national economies are aggregated; the second dimension studies the effect on a cross-country level. National economies differ with respect to tax regimes; I assume different degree of labor income tax progressivity, resembling the case of the Euro Area. Tax progressivity redistributes income within the country cross-sectionally, from rich to poor households, which is the main rationale for its introduction. Does and to what extent tax progressivity improve welfare of a country and how does interaction with other tax regimes affect a welfare on a union level subject to a common monetary policy is the main issue I intend to focus on. My prior is that heterogeneity among countries and financial frictions to which members of a union are exposed to, imply a strong insurance role tax redistribution provides to credit constrained agents. Moreover, failure of international risk-sharing means that some countries might experience indeterminacy, even when there is determinacy on a union-level.