On policy interactions among nations. When do cooperation and commitment matter?

Hubert Kempf () and Leopold von Thadden ()
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Hubert Kempf: Banque de France, Paris School of Economics and Université Paris-1, Panthéon-Sorbonne; Contact address: Banque de France, 39 Croix-des-Petits-Champs, 75049 Paris Cedex 01, France., http://www.banque-france.fr/home.htm
Leopold von Thadden: European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany., http://www.ecb.europa.eu/home/html/index.en.html

No 880, Working Paper Series from European Central Bank

Abstract: This paper offers a framework to study commitment and cooperation issues in games with multiple policymakers. To reconcile some puzzles in the recent literature on the nature of policy interactions among nations, we prove that games characterized by different commitment and cooperation schemes can admit the same equilibrium outcome if certain spillover effects vanish at the common solution of these games. We provide a detailed discussion of these spillovers, showing that, in general, commitment and cooperation are non-trivial issues. Yet, in linear-quadratic models with multiple policymakers commitment and cooperation schemes are shown to become irrelevant under certain assumptions. The framework is su??ciently general to cover a broad range of results from the recent literature on policy interactions as special cases, both within monetary unions and among fully sovereign nations. JEL Classification: E52, E63.

Keywords: Monetary policy; Fiscal regimes. (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mac and nep-pbe
Date: Written 2008-03
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