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Macroeconomic Stabilization Policies in the EMU: Spillovers, Asymmetries, and Institutions

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  • Giovanni Di Bartolomeo
  • Jacob Engwerda
  • Joseph Plasmans
  • Bas van Aarle
  • Tomasz Michalak

Abstract

This paper studies the institutional design of the coordination of macroeconomic stabilization policies within a monetary union in the framework of linear quadratic differential games. A central role in the analysis plays the partitioned game approach of the endogenous coalition formation literature. The specific policy recommendations in the EMU context depend on the particular characteristics of the shocks and the economic structure. In the case of a common shock, fiscal coordination or full policy coordination is desirable. When asymmetric shocks are considered, fiscal coordination improves the performance but full policy coordination doesn’t produce further gains in policymakers’ welfare.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2005/wp-cesifo-2005-01/cesifo1_wp1376.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1376.

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Date of creation: 2005
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Handle: RePEc:ces:ceswps:_1376

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Keywords: macroeconomic stabilization; EMU; coalition formation; linear quadratic differential games;

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  1. Engwerda, J.C., 1997. "Computational aspects of the open-loop Nash Equilibrium in linear quadratic games," Discussion Paper, Tilburg University, Center for Economic Research 1997-83, Tilburg University, Center for Economic Research.
  2. John DiNardo & Mark P. Moore, 1999. "The Phillips Curve is Back? Using Panel Data to Analyze the Relationship Between Unemployment and Inflation in an Open Economy," NBER Working Papers 7328, National Bureau of Economic Research, Inc.
  3. Clarida, R. & Gali, J. & Gertler, M., 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Working Papers, C.V. Starr Center for Applied Economics, New York University 99-13, C.V. Starr Center for Applied Economics, New York University.
  4. Ecchia, Giulio & Mariotti, Marco, 1998. "Coalition formation in international environmental agreements and the role of institutions," European Economic Review, Elsevier, Elsevier, vol. 42(3-5), pages 573-582, May.
  5. Aarle, B. van & Engwerda, J.C. & Plasmans, J.E.J., 2002. "Monetary and fiscal policy interaction in the EMU: A dynamic game approach," Open Access publications from Tilburg University, Tilburg University urn:nbn:nl:ui:12-91686, Tilburg University.
  6. Beetsma, Roel & Debrun, Xavier & Klaassen, Franc, 2001. "Is Fiscal Policy Coordination in EMU Desirable?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3035, C.E.P.R. Discussion Papers.
  7. Peter Hooper & Karen Johnson & Jaime Marquez, 1998. "Trade elasticities for G-7 countries," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 609, Board of Governors of the Federal Reserve System (U.S.).
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  10. Bas van Aarle & Giovanni Di Bartolomeo & Jacob Engwerda & Joseph Plasmans, 2002. "Staying Together or Breaking Apart: Policy-makers’ Endogenous Coalitions Formation in the European Economic and Monetary Union," CESifo Working Paper Series 748, CESifo Group Munich.
  11. Chwe Michael Suk-Young, 1994. "Farsighted Coalitional Stability," Journal of Economic Theory, Elsevier, Elsevier, vol. 63(2), pages 299-325, August.
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  13. Mojon, Benoît & Kashyap, Anil K. & Angeloni, Ignazio & Terlizzese, Daniele, 2002. "Monetary Transmission in the Euro Area : Where Do We Stand?," Working Paper Series, European Central Bank 0114, European Central Bank.
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  15. Monfort, Alain & Renne, Jean-Paul & Rüffer, Rasmus & Vitale, Giovanni, 2003. "Is Economic Activity in the G7 Synchronized? Common Shocks versus Spillover Effects," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4119, C.E.P.R. Discussion Papers.
  16. Engwerda, J.C. & Aarle, B. van & Plasmans, J.E.J., 1998. "Fiscal Policy Interaction in the EMU," Discussion Paper, Tilburg University, Center for Economic Research 1998-113, Tilburg University, Center for Economic Research.
  17. Engwerda, Jacob C. & van Aarle, Bas & Plasmans, Joseph E. J., 2002. "Cooperative and non-cooperative fiscal stabilization policies in the EMU," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 26(3), pages 451-481, March.
  18. Carraro, Carlo & Siniscalco, Domenico, 1998. "International Institutions and Environmental Policy: International environmental agreements: Incentives and political economy1," European Economic Review, Elsevier, Elsevier, vol. 42(3-5), pages 561-572, May.
  19. Hamid Faruqee & Douglas Laxton & Bart Turtelboom & Peter Isard & Eswar Prasad, 1998. "Multimod Mark III," IMF Occasional Papers, International Monetary Fund 164, International Monetary Fund.
  20. Bloch, Francis, 1996. "Sequential Formation of Coalitions in Games with Externalities and Fixed Payoff Division," Games and Economic Behavior, Elsevier, Elsevier, vol. 14(1), pages 90-123, May.
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Cited by:
  1. Jean-Sébastien Pentecôte & Maryline Huchet-Bourdon, 2009. "Shock asymmetries and distance to the Euro Area," Post-Print, HAL hal-00730072, HAL.

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