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Macroeconomic Stabilization Policies In The Emu: Spillovers, Asymmetries And Institutions

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

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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Article provided by Scottish Economic Society in its journal Scottish Journal of Political Economy.

Volume (Year): 53 (2006)
Issue (Month): 4 (09)
Pages: 461-484

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Handle: RePEc:bla:scotjp:v:53:y:2006:i:4:p:461-484
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