Together We Are Strong—Divided Still Stronger? Strategic Aspects of a Fiscal Union

Dmitri Blueschke and Reinhard Neck ()

A chapter in Operations Research Proceedings 2015, 2017, pp 563-568 from Springer

Abstract: Abstract In this paper we present an application of dynamic tracking games to a monetary union. We use a small stylized nonlinear two-country macroeconomic model of a monetary union for analysing the interactions between two fiscal (governments) and one monetary (common central bank) policy makers. We introduce a negative asymmetric demand side shock describing the macroeconomic dynamics within a monetary union similar to the economic crisis (2007–2010) and the sovereign debt crisis (since 2010) in Europe. We investigate the welfare consequences of three scenarios: fiscal policies by independent governments (the present situation), centralized fiscal policy (a fiscal union) with an independent central bank, and a fully centralized fiscal and monetary union. For the latter two scenarios, we investigate the effects of different assumptions about the weights for the two governments in the cooperative agreement.

Keywords: Central Bank; Fiscal Policy; Euro Area; Public Debt; Monetary Union (search for similar items in EconPapers)
Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:spr:oprchp:978-3-319-42902-1_76

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DOI: 10.1007/978-3-319-42902-1_76

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