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On policy interactions among nations: when do cooperation and commitment matter?

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  • Kempf, Hubert
  • von Thadden, Leopold

Abstract

This paper offers a framework to study commitment and cooperation issues in games with multiple policymakers. To reconcile some puzzles in the recent literature on the nature of policy interactions among nations, we prove that games characterized by different commitment and cooperation schemes can admit the same equilibrium outcome if certain spillover effects vanish at the common solution of these games. We provide a detailed discussion of these spillovers, showing that, in general, commitment and cooperation are non-trivial issues. Yet, in linear-quadratic models with multiple policymakers commitment and cooperation schemes are shown to become irrelevant under certain assumptions. The framework is suficiently general to cover a broad range of results from the recent literature on policy interactions as special cases, both within monetary unions and among fully sovereign nations. JEL Classification: E52, E63

Suggested Citation

  • Kempf, Hubert & von Thadden, Leopold, 2008. "On policy interactions among nations: when do cooperation and commitment matter?," Working Paper Series 880, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:2008880
    Note: 269717
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    Cited by:

    1. Hubert Kempf, 2020. "Designing the Policy Mix in a Monetary Union," CESifo Working Paper Series 8321, CESifo.
    2. Paolo Canofari & Giovanni Bartolomeo & Giovanni Piersanti, 2014. "Theory and Practice of Contagion in Monetary Unions: Domino Effects in EMU Mediterranean Countries," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 20(3), pages 259-267, August.
    3. 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.
    4. 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.

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    More about this item

    Keywords

    fiscal regimes; monetary policy;

    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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