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Macroeconomic Policy Interaction under EMU: A Dynamic Game Approach

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Author Info

  • Bas Van Aarle
  • Jacob Engwerda

    ()

  • Joseph Plasmans
  • Arie Weeren

Abstract

In this article, we study macroeconomic stabilization in the Economic and Monetary Union (EMU) using a dynamic game approach. With the aid of a stylized macroeconomic model, this article analyzes the transmission and interaction of national fiscal policies and monetary policy of the European Central Bank (ECB) in the EMU. A special focus is on the effects of labor market institutions in the participating countries and of the introduction of fiscal stringency criteria like those imposed in the Stability and Growth Pact. Copyright Kluwer Academic Publishers 2001

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File URL: http://hdl.handle.net/10.1023/A:1026507026304
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Bibliographic Info

Article provided by Springer in its journal Open Economies Review.

Volume (Year): 12 (2001)
Issue (Month): 1 (January)
Pages: 29-60

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Handle: RePEc:kap:openec:v:12:y:2001:i:1:p:29-60

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Web page: http://www.springerlink.com/link.asp?id=100323

Related research

Keywords: macroeconomic stabilization; EMU; linear quadratic differential games; Riccati equations;

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References

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  1. Agell, Jonas, 1999. "On the Benefits from Rigid Labour Markets: Norms, Market Failures, and Social Insurance," Economic Journal, Royal Economic Society, vol. 109(453), pages F143-64, February.
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  3. Engwerda, J.C. & Aarle, B. van & Plasmans, J.E.J., 1998. "Fiscal Policy Interaction in the EMU," Discussion Paper 1998-113, Tilburg University, Center for Economic Research.
  4. Berthold, Norbert & Fehn, Rainer, 1998. "Does EMU Promote Labor-Market Reforms?," Kyklos, Wiley Blackwell, vol. 51(4), pages 509-36.
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  6. Engwerda, J.C., 2000. "Feedback Nash equilibria in the scalar infinite horizon LQ-Game," Open Access publications from Tilburg University urn:nbn:nl:ui:12-81029, Tilburg University.
  7. Reinhard Neck & Engelbert Dockner, 1995. "Commitment and coordination in a dynamic game model of international economic policy-making," Open Economies Review, Springer, vol. 6(1), pages 5-28, January.
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  9. Petit, Maria Luisa, 1989. "Fiscal and Monetary Policy Co-ordination: A Differential Game Approac h," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 4(2), pages 161-79, April-Jun.
  10. Hughes Hallett, A J & Ma, Yue, 1996. "Changing Partners: The Importance of Coordinating Fiscal and Monetary Policies within a Monetary Union," The Manchester School of Economic & Social Studies, University of Manchester, vol. 64(2), pages 115-34, June.
  11. Andrew Hughes Hallett & Laura Piscitelli, 1999. "EMU in Reality: The Effect of a Common Monetary Policy on Economies with Different Transmission Mechanisms," Empirica, Springer, vol. 26(4), pages 337-358, December.
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  13. Currie, David & Levine, Paul L & Pearlman, Joseph, 1990. "European Monetary Union or Hard EMS?," CEPR Discussion Papers 472, C.E.P.R. Discussion Papers.
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  15. Demertzis, Maria & Hughes Hallett, Andrew, 1999. "An Independent Central Bank Faced With Elected Governments," CEPR Discussion Papers 2219, C.E.P.R. Discussion Papers.
  16. Weeren, A.J.T.M. & Schumacher, J.M. & Engwerda, J.C., 1994. "Asymptotic analysis of Nash equilibria in nonzero-sum linear-quadratic differential games: The two player case," Research Memorandum 634, Tilburg University, Faculty of Economics and Business Administration.
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Citations

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Cited by:
  1. Aarle, B. van & Engwerda, J.C. & Plasmans, J.E.J., 2001. "Monetary and Fiscal Policy Interaction in the EMU: A Dynamic Game Approach," Open Access publications from Tilburg University urn:nbn:nl:ui:12-88307, Tilburg University.
  2. Herzog, Bodo, 2006. "Coordination of fiscal and monetary policy in CIS-countries: A theory of optimum fiscal area?," Research in International Business and Finance, Elsevier, vol. 20(2), pages 256-274, June.
  3. Creel, Jerome & Capoen, Fabrice & Cussy, Pascal & Lenoble-Liaud, Helene, 2003. "How to manage financial shocks: Intra-European vs. international monetary coordination," Journal of Macroeconomics, Elsevier, vol. 25(4), pages 431-455, December.
  4. Oliver Grimm & Stefan Ried, 2007. "Macroeconomic Policy in a Heterogeneous Monetary Union," SFB 649 Discussion Papers SFB649DP2007-028, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  5. Jerome Creel & Henri Sterdyniak, 2002. "The fiscal theory of the price level and sluggish inflation: how important shall the wealth effect be?," Documents de Travail de l'OFCE 2002-01, Observatoire Francais des Conjonctures Economiques (OFCE).
  6. Bas van Aarle & Giovanni Di Bartolomeo & Jacob Engwerda & Joseph Plasmans, 2002. "Monetary and Fiscal Policy Design in the EMU: An Overview," Open Economies Review, Springer, vol. 13(4), pages 321-340, October.
  7. Aarle, B. van & Bartolomeo, G. di & Engwerda, J.C. & Plasmans, J.E.J., 2001. "Monetary and fiscal policy design in the EMU using a dynamic game approach: An overview," Open Access publications from Tilburg University 2001.19, Tilburg University.
  8. Fritz Breuss & Andrea Weber, 1999. "Economic Policy Coordination in the EMU: Implications for the Stability Pact," EUI-RSCAS Working Papers 26, European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS).
  9. Plasmans, J.E.J. & Meersman, H. & Poeck, A. van & Merlevede, B., 1999. "Generosity of the Unemployment Benefit System and Wage Flexibility in EMU: Time-Varying Evidence in Five Countries," Open Access publications from Tilburg University urn:nbn:nl:ui:12-81573, Tilburg University.
  10. F. Bohn, 2003. "Monetary Union and the Interest-Exchange Rate Trade-off," Economics Discussion Papers 554, University of Essex, Department of Economics.
  11. repec:spo:wpecon:info:hdl:2441/2972 is not listed on IDEAS
  12. Plasmans, J.E.J., 2001. "The Effects of Fiscal and Monetary Policy in an Open Economy: A Case of EU, the USA and Japan," Open Access publications from Tilburg University urn:nbn:nl:ui:12-92275, Tilburg University.

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