Why macroeconomic coordination may not be possible in a monetary union: A game theoretic approach

George D. Demopoulos and Nicholas A. Yannacopoulos

The Journal of Economic Asymmetries, 2016, vol. 13, issue C, 69-73

Abstract: In order to explore the possibility of macroeconomic policy coordination in monetary unions, we model the monetary union as an n-person cooperative game. A key equilibrium concept of this game is the core, which is defined as the set of outcomes that can be blocked by no coalition. It follows that in a monetary union, coordination is possible if the monetary game possesses a core, i.e., when the joint outcome, obtained if all member countries coordinate their activities, cannot be challenged by anyone. Thus, coordination is possible in all cases, in which the existing economic conditions eliminate all outcomes that any subset of countries could improve upon. And since these economic conditions are summarized by the characteristic function of the game, coordination (or the failure of coordination) of economic policies in a monetary union is determined by its properties.

Keywords: Currency areas; Game dynamics; Stability conditions (search for similar items in EconPapers)
JEL-codes: C E F (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:eee:joecas:v:13:y:2016:i:c:p:69-73

DOI: 10.1016/j.jeca.2016.02.001

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