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Macroeconomic policy interaction under EMU: A dynamic game approach

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  • Aarle, B. van

    (Tilburg University)

  • Engwerda, J.C.

    (Tilburg University)

  • Plasmans, J.E.J.

    (Tilburg University)

  • Weeren, A.J.T.M.

    (Tilburg University)

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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Bibliographic Info

Paper provided by Tilburg University in its series Open Access publications from Tilburg University with number urn:nbn:nl:ui:12-85061.

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Date of creation: 2001
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Publication status: Published in Open Economies Review (2001) v.12, p.29-60
Handle: RePEc:ner:tilbur:urn:nbn:nl:ui:12-85061

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Web page: http://www.tilburguniversity.edu/

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References

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  1. Currie, David & Levine, Paul L & Pearlman, Joseph, 1990. "European Monetary Union or Hard EMS?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 472, C.E.P.R. Discussion Papers.
  2. Jürgen Hagen & Stefan Lutz, 1996. "Fiscal and monetary policy on the way to EMU," Open Economies Review, Springer, Springer, vol. 7(4), pages 299-325, October.
  3. Petit, Maria Luisa, 1989. "Fiscal and Monetary Policy Co-ordination: A Differential Game Approac h," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 4(2), pages 161-79, April-Jun.
  4. Andrew Hughes Hallett & Laura Piscitelli, 1999. "EMU in Reality: The Effect of a Common Monetary Policy on Economies with Different Transmission Mechanisms," Empirica, Springer, Springer, vol. 26(4), pages 337-358, December.
  5. 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.
  6. Fershtman, Chaim & Kamien, Morton I, 1987. "Dynamic Duopolistic Competition with Sticky Prices," Econometrica, Econometric Society, Econometric Society, vol. 55(5), pages 1151-64, September.
  7. Berthold, Norbert & Fehn, Rainer, 1998. "Does EMU Promote Labor-Market Reforms?," Kyklos, Wiley Blackwell, Wiley Blackwell, vol. 51(4), pages 509-36.
  8. Engwerda, J.C., 2000. "Feedback Nash equilibria in the scalar infinite horizon LQ-Game," Open Access publications from Tilburg University, Tilburg University urn:nbn:nl:ui:12-81029, Tilburg University.
  9. Jensen, Svend Erik Hougaard & Jensen, Lars Grue, 1995. "Debt, deficits and transition to EMU: A small country analysis," European Journal of Political Economy, Elsevier, Elsevier, vol. 11(1), pages 3-25, March.
  10. Reinhard Neck & Engelbert Dockner, 1995. "Commitment and coordination in a dynamic game model of international economic policy-making," Open Economies Review, Springer, Springer, vol. 6(1), pages 5-28, January.
  11. Agell, Jonas, 1999. "On the Benefits from Rigid Labour Markets: Norms, Market Failures, and Social Insurance," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 109(453), pages F143-64, February.
  12. M. Buti & D. Franco & H. Ongena, 1997. "Budgetary Policies during Recessions - Retrospective Application of the "Stability and Growth Pact" to the Post-War Period," European Economy - Economic Papers, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission 121, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  13. German, Israel, 1985. "Disequilibrium Dynamics and the Stability of Quasi Equilibria," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 100(3), pages 571-96, August.
  14. Engwerda, J.C. & Salmah, Y., 2010. "Feedback Nash Equilibria for Linear Quadratic Descriptor Differential Games," Discussion Paper, Tilburg University, Center for Economic Research 2010-79, Tilburg University, Center for Economic Research.
  15. 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, Tilburg University, Faculty of Economics and Business Administration 634, Tilburg University, Faculty of Economics and Business Administration.
  16. Demertzis, Maria & Hughes Hallett, Andrew, 1999. "An Independent Central Bank Faced With Elected Governments," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2219, C.E.P.R. Discussion Papers.
  17. Barrell, Ray & Sefton, James, 1997. "Fiscal Policy and the Masstricht Solvency Criteria," The Manchester School of Economic & Social Studies, University of Manchester, University of Manchester, vol. 65(3), pages 259-79, June.
  18. Hughes Hallett, A J & Vines, D, 1993. "On the Possible Costs of European Monetary Union," The Manchester School of Economic & Social Studies, University of Manchester, University of Manchester, vol. 61(1), pages 35-64, March.
  19. Lensberg, Terje, 1988. "Stability and the Nash solution," Journal of Economic Theory, Elsevier, Elsevier, vol. 45(2), pages 330-341, August.
  20. 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, University of Manchester, vol. 64(2), pages 115-34, June.
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Citations

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Cited by:
  1. Oliver Grimm & Stefan Ried, 2007. "Macroeconomic Policy in a Heterogeneous Monetary Union," SFB 649 Discussion Papers SFB649DP2007-028, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  2. 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, Tilburg University urn:nbn:nl:ui:12-88307, Tilburg University.
  3. PLASMANS, Joseph & MEERSMAN, Hilde & VAN POECK, André & MERLEVEDE, Bruno, 1999. "Generosity of the unemployment benefit systern and wage flexibility in EMU: Time- varying evidence in five countries," Working Papers 1999043, University of Antwerp, Faculty of Applied Economics.
  4. Aarle, B. van & Bartolomeo, G. di & Engwerda, J.C. & Plasmans, J.E.J., 2002. "Monetary and fiscal policy design in the EMU: An overview," Open Access publications from Tilburg University, Tilburg University urn:nbn:nl:ui:12-91766, Tilburg University.
  5. Fritz Breuss & Andrea Weber, 1999. "Economic Policy Coordination in the EMU: Implications for the Stability Pact," EUI-RSCAS Working Papers, European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS) 26, European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS).
  6. F. Bohn, 2003. "Monetary Union and the Interest-Exchange Rate Trade-off," Economics Discussion Papers, University of Essex, Department of Economics 554, University of Essex, Department of Economics.
  7. Jérôme Creel & Henri Sterdyniak, 2002. "The fiscal theory of the price level and sluggish inflation: how important shall the wealth effect be?," Sciences Po publications 2002-01, Sciences Po.
  8. 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, Elsevier, vol. 25(4), pages 431-455, December.
  9. 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, Tilburg University 2001.19, Tilburg University.
  10. repec:spo:wpecon:info:hdl:2441/2972 is not listed on IDEAS
  11. 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, Tilburg University urn:nbn:nl:ui:12-92275, Tilburg University.
  12. 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, Elsevier, vol. 20(2), pages 256-274, June.

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