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When do cooperation and commitment matter in a monetary union?

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  • Kempf, Hubert
  • von Thadden, Leopold

Abstract

This paper offers a framework to study strategic interactions between private players, national fiscal authorities and a common central bank in monetary unions. We establish general conditions, in terms of restrictions on spillover effects of actions by private and public players, under which games that differ in the degree of cooperation and commitment can admit the same equilibrium outcome. We use these conditions to characterize benchmark results on the irrelevance of cooperation and commitment established in recent literature. Moreover, we show for a general setting, in which the benchmark results do not apply, that gains from fiscal cooperation depend on the number of countries and increase as this number gets larger.

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  • Kempf, Hubert & von Thadden, Leopold, 2013. "When do cooperation and commitment matter in a monetary union?," Journal of International Economics, Elsevier, vol. 91(2), pages 252-262.
    • Handle: RePEc:eee:inecon:v:91:y:2013:i:2:p:252-262
    DOI: 10.1016/j.jinteco.2013.07.007
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    Cited by:

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    2. Pasquale Foresti, 2018. "Monetary And Fiscal Policies Interaction In Monetary Unions," Journal of Economic Surveys, Wiley Blackwell, vol. 32(1), pages 226-248, February.
    3. Caterina Mendicino, 2014. "House prices and expectations," Research Bulletin, European Central Bank, vol. 21, pages 12-15.
    4. Debrun, Xavier & Masuch, Klaus & Ferrero, Guiseppe & Vansteenkiste, Isabel & Ferdinandusse, Marien & von Thadden, Leopold & Hauptmeier, Sebastian & Alloza, Mario & Derouen, Chloé & Bańkowski, Krzyszto, 2021. "Monetary-fiscal policy interactions in the euro area," Occasional Paper Series 273, European Central Bank.
    5. Paloma Lopez-Garcia & Filippo di Mauro, 2014. "Assessing competitiveness: initial results from the new compnet micro-based database," Research Bulletin, European Central Bank, vol. 21, pages 2-7.
    6. Keshab Raj Bhattarai & Sushanta K. Mallick, 2015. "Macroeconomic policy coordination in the global economy: VAR and BVAR-DSGE analyses," EcoMod2015 8610, EcoMod.
    7. Oliver Landmann, 2018. "On the Logic of Fiscal Policy Coordination in a Monetary Union," Open Economies Review, Springer, vol. 29(1), pages 69-87, February.
    8. Chortareas, Georgios & Mavrodimitrakis, Christos, 2021. "Policy conflict, coordination, and leadership in a monetary union under imperfect instrument substitutability," Journal of Economic Behavior & Organization, Elsevier, vol. 183(C), pages 342-361.
    9. Hubert Kempf, 2020. "Designing the Policy Mix in a Monetary Union," CESifo Working Paper Series 8321, CESifo.
    10. Christos Mavrodimitrakis, 2022. "The Policy Mix in a Monetary Union: Who Bears the Burden of Asymmetric Shocks' Stabilisation?," Economics Discussion Papers em-dp2022-12, Department of Economics, University of Reading.
    11. Sebastian Schmidt, 2014. "Dealing with a liquidity trap when government debt matters," Research Bulletin, European Central Bank, vol. 21, pages 8-11.

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    More about this item

    Keywords

    Monetary policy; Fiscal regimes; Monetary unions; Commitment; Cooperation;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy

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