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Staying Together or Breaking Apart: Policy-makers’ Endogenous Coalitions Formation in the European Economic and Monetary Union

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

In this paper, we analyze coordination of macroeconomic stabilization policies within the EMU by focusing, in a dynamic set-up, on asymmetries, externalities, and the existence of a multi-country context. We study how coalitions among fiscal and monetary authorities are formed and what are their effects on the stabilization of output and price. In particular, our attention is directed to study the consequences on these issues of different institutional contexts in which policy-makers may act. Among other results, we found that, in the presence of externalities, the occurrence of asymmetries is a necessary but not a sufficient condition for cooperation.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 748.

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Date of creation: 2002
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Handle: RePEc:ces:ceswps:_748
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  1. Debraj Ray & Rajiv Vohra, 1996. "A Theory of Endogenous Coalition Structure," Papers 0068, Boston University - Industry Studies Programme.
  2. Engwerda, J.C. & van Aarle, B. & Plasmans, J.E.J., 2002. "Cooperative and non-cooperative fiscal stabilization policies in the EMU," Other publications TiSEM 2cc19f3f-16ad-4fed-a701-5, Tilburg University, School of Economics and Management.
  3. Sack, Brian, 2000. "Does the fed act gradually? A VAR analysis," Journal of Monetary Economics, Elsevier, vol. 46(1), pages 229-256, August.
  4. Stephen J. Turnovsky & Tamer Basar & Vasco d'Orey, 1987. "Dynamic Strategic Monetary Policies and Coordination in Interdependent Economies," NBER Working Papers 2467, National Bureau of Economic Research, Inc.
  5. Svensson, Lars E O, 1999. "Monetary Policy Issues for the Eurosystem," CEPR Discussion Papers 2197, C.E.P.R. Discussion Papers.
  6. Kohler, Marion, 2002. "Coalition formation in international monetary policy games," Journal of International Economics, Elsevier, vol. 56(2), pages 371-385, March.
  7. Claude d'Aspremont & Alexis Jacquemin & Jean Jaskold Gabszewicz & John A. Weymark, 1983. "On the Stability of Collusive Price Leadership," Canadian Journal of Economics, Canadian Economics Association, vol. 16(1), pages 17-25, February.
  8. John B. Taylor, 1999. "A Historical Analysis of Monetary Policy Rules," NBER Chapters, in: Monetary Policy Rules, pages 319-348 National Bureau of Economic Research, Inc.
  9. John B. Taylor, 1999. "Introduction to "Monetary Policy Rules"," NBER Chapters, in: Monetary Policy Rules, pages 1-14 National Bureau of Economic Research, Inc.
  10. Ecchia, Giulio & Mariotti, Marco, 1998. "Coalition formation in international environmental agreements and the role of institutions," European Economic Review, Elsevier, vol. 42(3-5), pages 573-582, May.
  11. Beetsma, R.M.W.J. & Bovenberg, A.L., 1995. "Monetary union without fiscal coordination may discipline policymakers," Discussion Paper 1995-59, Tilburg University, Center for Economic Research.
  12. Yi, Sang-Seung, 1997. "Stable Coalition Structures with Externalities," Games and Economic Behavior, Elsevier, vol. 20(2), pages 201-237, August.
  13. Joseph Daniels & David VanHoose, 1998. "Two-Country Models of Monetary and Fiscal Policy: What Have We Learned? What More Can We Learn?," Open Economies Review, Springer, vol. 9(3), pages 265-284, July.
  14. Reinhard Neck & Engelbert Dockner, 1995. "Commitment and coordination in a dynamic game model of international economic policy-making," Open Economies Review, Springer, vol. 6(1), pages 5-28, January.
  15. Engwerda, J.C. & van Aarle, B. & Plasmans, J.E.J., 1997. "The (in)finite horizon open-loop Nash LQ Game : An application to EMU," Discussion Paper 1997-84, Tilburg University, Center for Economic Research.
  16. John B. Taylor, 1999. "Monetary Policy Rules," NBER Books, National Bureau of Economic Research, Inc, number tayl99-1.
  17. Engwerda, J. C., 1998. "Computational aspects of the open-loop Nash equilibrium in linear quadratic games," Journal of Economic Dynamics and Control, Elsevier, vol. 22(8-9), pages 1487-1506, August.
  18. Bloch, Francis, 1996. "Sequential Formation of Coalitions in Games with Externalities and Fixed Payoff Division," Games and Economic Behavior, Elsevier, vol. 14(1), pages 90-123, May.
  19. Carraro, Carlo & Siniscalco, Domenico, 1992. "The international dimension of environmental policy," European Economic Review, Elsevier, vol. 36(2-3), pages 379-387, April.
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