Monetary and Fiscal Policy Interaction in the EMU: A Dynamic Game Approach

Bas van Aarle, Jacob Engwerda and Joseph Plasmans

Annals of Operations Research, 2002, vol. 109, issue 1, 229-264

Abstract: The interaction of monetary and fiscal policies is a crucial issue in a highly integrated economic area as the European Union. We investigate to which extent the EMU, that introduced a common monetary policy and restrictions on fiscal policy at the national level, benefits from macroeconomic policy cooperation due to the various interactions, spillovers and externalities from national macroeconomic policies. To study the effects of policy cooperation we compare the impact of three alternative policy regimes in a stylized dynamic model of the EMU: (i) non-cooperative monetary and fiscal policies, (ii) partial cooperation, and (iii) full cooperation both in symmetric and asymmetric settings where countries differ in structural characteristics, policy preferences and/or bargaining power. The paper introduces an analysis of coalitional behaviour in a dynamic setting into the literature. Copyright Kluwer Academic Publishers 2002

Keywords: EMU; stabilisation policies; full and partial cooperation; LQ dynamic game (search for similar items in EconPapers)
Date: 2002
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Working Paper: Monetary and Fiscal Policy Interaction in the EMU: A Dynamic Game Approach (2001)
Working Paper: Monetary and fiscal policy interaction in the EMU: A dynamic game approach
Working Paper: Monetary and fiscal policy interaction in the EMU: A dynamic game approach
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DOI: 10.1023/A:1016308420460

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