IDEAS home Printed from https://ideas.repec.org/a/kap/iaecre/v26y2020i4d10.1007_s11294-020-09803-2.html
   My bibliography  Save this article

Every Country for Itself and the Central Bank for Us All?

Author

Listed:
  • R. Neck

    (Alpen-Adria-Universität Klagenfurt)

  • D. Blueschke

    (Alpen-Adria-Universität Klagenfurt)

Abstract

This paper used a small stylized nonlinear three-country macroeconomic model of a monetary union to analyse the interactions between fiscal (governments) and monetary (common central bank) policymakers. The three fiscal players were divided into a financially stable core and a less stable periphery. The periphery itself consisted of two players with different perceptions of the trade-off between fiscal stability and output growth. Using the OPTGAME algorithm, solutions were calculated for two game strategies: one cooperative (Pareto optimal) and one non-cooperative game type (the Nash game for the feedback information pattern). Introducing a negative demand shock, the performance of different coalition options between players were analysed. A higher level of cooperation leads in general to a better overall outcome of the game, however, with highly varying burdens to be borne by the players.

Suggested Citation

  • R. Neck & D. Blueschke, 2020. "Every Country for Itself and the Central Bank for Us All?," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 26(4), pages 377-389, November.
    • Handle: RePEc:kap:iaecre:v:26:y:2020:i:4:d:10.1007_s11294-020-09803-2
    DOI: 10.1007/s11294-020-09803-2
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s11294-020-09803-2
    File Function: Abstract
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s11294-020-09803-2?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Gali­, Jordi & Monacelli, Tommaso, 2008. "Optimal monetary and fiscal policy in a currency union," Journal of International Economics, Elsevier, vol. 76(1), pages 116-132, September.
    2. Joseph Plasmans & Jacob Engwerda & Bas Van Aarle & Tomasz Michalak & Giovanni Di Bartolomeo, 2006. "Macroeconomic Stabilization Policies In The Emu: Spillovers, Asymmetries And Institutions," Scottish Journal of Political Economy, Scottish Economic Society, vol. 53(4), pages 461-484, September.
    3. Mark Aguiar & Manuel Amador & Emmanuel Farhi & Gita Gopinath, 2015. "Coordination and Crisis in Monetary Unions," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 130(4), pages 1727-1779.
    4. Reinhard Neck & Dmitri Blueschke, 2014. "“Haircuts” for the EMU periphery: virtue or vice?," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 41(2), pages 153-175, May.
    5. Beetsma, Roel M.W.J. & Jensen, Henrik, 2005. "Monetary and fiscal policy interactions in a micro-founded model of a monetary union," Journal of International Economics, Elsevier, vol. 67(2), pages 320-352, December.
    6. Benigno, Pierpaolo, 2004. "Optimal monetary policy in a currency area," Journal of International Economics, Elsevier, vol. 63(2), pages 293-320, July.
    7. Andersen, Torben M., 2005. "Fiscal stabilization policy in a monetary union with inflation targeting," Journal of Macroeconomics, Elsevier, vol. 27(1), pages 1-29, March.
    8. Dmitri Blueschke & Reinhard Neck, 2011. "“Core” and “Periphery” in a Monetary Union: A Macroeconomic Policy Game," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 17(3), pages 334-346, August.
    9. Reinhard Neck & Dmitri Blueschke, 2016. "United we stand: on the macroeconomics of a Fiscal union," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 43(2), pages 333-347, May.
    10. Joseph Plasmans & Jacob Engwerda & Bas van Aarle & Giovanni di Bartolomeo & Tomasz Michalak, 2006. "Dynamic Modeling of Monetary and Fiscal Cooperation Among Nations," Dynamic Modeling and Econometrics in Economics and Finance, Springer, number 978-0-387-27931-2, July-Dece.
    11. Okano, Eiji, 2014. "How important is fiscal policy cooperation in a currency union?," Journal of Economic Dynamics and Control, Elsevier, vol. 38(C), pages 266-286.
    12. Dmitri Blueschke & Reinhard Neck, 2018. "Game of Thrones: Accommodating Monetary Policies in a Monetary Union," Games, MDPI, vol. 9(1), pages 1-15, February.
    13. Ferrero, Andrea, 2009. "Fiscal and monetary rules for a currency union," Journal of International Economics, Elsevier, vol. 77(1), pages 1-10, February.
    14. Michael U. Krause & Stéphane Moyen, 2016. "Public Debt and Changing Inflation Targets," American Economic Journal: Macroeconomics, American Economic Association, vol. 8(4), pages 142-176, October.
    15. Andrew HUGHES HALLETT & Jan LIBICH & Petr STEHLÍK, 2014. "Monetary and Fiscal Policy Interaction with Various Degrees of Commitment," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 64(1), pages 2-29, February.
    16. ,, 2009. "Economics of Monetary Union," OUP Catalogue, Oxford University Press, edition 8, number 9780199563234, Decembrie.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Dmitri Blueschke & Viktoria Blueschke-Nikolaeva & Reinhard Neck, 2023. "Should fiscal policies be centralized in a monetary union? A dynamic game approach," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 31(4), pages 1129-1148, December.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Dmitri Blueschke & Reinhard Neck, 2018. "Game of Thrones: Accommodating Monetary Policies in a Monetary Union," Games, MDPI, vol. 9(1), pages 1-15, February.
    2. Neck, R. & Blueschke, D., 2016. "What to do when stagflation returns? Monetary and fiscal policy strategies for a monetary union," The Journal of Economic Asymmetries, Elsevier, vol. 14(PA), pages 128-146.
    3. Kaufmann, Christoph, 2019. "Optimal fiscal substitutes for the exchange rate in monetary unions," Journal of Economic Dynamics and Control, Elsevier, vol. 103(C), pages 43-62.
    4. Pasquale Foresti, 2018. "Monetary And Fiscal Policies Interaction In Monetary Unions," Journal of Economic Surveys, Wiley Blackwell, vol. 32(1), pages 226-248, February.
    5. repec:diw:diwfin:diwfin07042 is not listed on IDEAS
    6. Horst, Maximilian & Neyer, Ulrike & Stempel, Daniel, 2020. "Asymmetric macroeconomic effects of QE-induced increases in excess reserves in a monetary union," DICE Discussion Papers 346, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    7. Palek, Jakob & Schwanebeck, Benjamin, 2017. "Financial frictions and optimal stabilization policy in a monetary union," Economic Modelling, Elsevier, vol. 61(C), pages 462-477.
    8. Stefanie Flotho, 2018. "Interaction of fiscal and monetary policy in a monetary union under the zero lower bound constraint," Annals of Operations Research, Springer, vol. 260(1), pages 159-196, January.
    9. Bhattarai, Saroj & Lee, Jae Won & Park, Woong Yong, 2015. "Optimal monetary policy in a currency union with interest rate spreads," Journal of International Economics, Elsevier, vol. 96(2), pages 375-397.
    10. Cole, Alexandre Lucas & Guerello, Chiara & Traficante, Guido, 2020. "One Emu Fiscal Policy For The Euro," Macroeconomic Dynamics, Cambridge University Press, vol. 24(6), pages 1437-1477, September.
    11. Hughes Hallett, Andrew & Mavrodimitrakis, Christos, 2019. "Cooperation vs. leadership in a core-periphery monetary union: Inter-country vs. inter-institutional policy coordination," Journal of Macroeconomics, Elsevier, vol. 59(C), pages 103-122.
    12. Roel Beetsma & Massimo Giuliodori, 2010. "The Macroeconomic Costs and Benefits of the EMU and Other Monetary Unions: An Overview of Recent Research," Journal of Economic Literature, American Economic Association, vol. 48(3), pages 603-641, September.
    13. Andreas Tischbirek, 2016. "Unconventional Monetary Policy in a Currency Union with Segmentation in the Market for Government Debt," Cahiers de Recherches Economiques du Département d'économie 16.16, Université de Lausanne, Faculté des HEC, Département d’économie.
    14. St?phane Auray & Aur?lien Eyquem, 2014. "Welfare Reversals in a Monetary Union," American Economic Journal: Macroeconomics, American Economic Association, vol. 6(4), pages 246-290, October.
    15. Simone Maciel Cuiabano & Maxwell Opoku-Afari, 2018. "Exchange Rate Dynamics and Monetary Integration in the EAC Countries," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 46(3), pages 267-279, September.
    16. Steffen Elstner & Nikolay Hristov & Oliver Hülsewig & Timo Wollmershäuser, 2010. "Optimal Monetary Policy in a Monetary Union with Housing and Credit Market Heterogeneity," Working Paper / FINESS 7.4B, DIW Berlin, German Institute for Economic Research.
    17. Lieb, L.M., 2009. "Taking real rigidities seriously: implications for optimal policy design in a currency union," Research Memorandum 032, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
    18. Kobielarz, Michal, 2018. "The economics of monetary unions," Other publications TiSEM b0293536-68ec-4905-bffd-6, Tilburg University, School of Economics and Management.
    19. Chortareas, Georgios & Mavrodimitrakis, Christos, 2017. "Strategic fiscal policies and leadership in a monetary union," European Journal of Political Economy, Elsevier, vol. 47(C), pages 133-147.
    20. Paulo Vieira & Celsa Machado & Ana Paula Ribeiro, 2016. "Optimal Fiscal Simple Rules for Small and Large Countries of a Monetary Union," EcoMod2016 9685, EcoMod.
    21. Dmitriy Sergeyev, 2016. "Optimal Macroprudential and Monetary Policy in a Currency Union," 2016 Meeting Papers 463, Society for Economic Dynamics.

    More about this item

    Keywords

    Dynamic game; Nash equilibrium; Pareto solution; Monetary union; Coalitions; Macroeconomics; Public debt;
    All these keywords.

    JEL classification:

    • C54 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Quantitative Policy Modeling
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • 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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:iaecre:v:26:y:2020:i:4:d:10.1007_s11294-020-09803-2. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.