Monetary and Fiscal Policy Interaction in the Emu: A Dynamic Game Approach

22 Pages Posted: 7 May 2001

See all articles by Bas Van Aarle

Bas Van Aarle

Leuven Centre for Irish Studies LCIS; CESifo (Center for Economic Studies and Ifo Institute); Radboud University Nijmegen - Department of Economics

Jacob C. Engwerda

retiree

Joseph Plasmans

University of Antwerp - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute); Tilburg University

Arie Weeren

University of Antwerp

Date Written: March 2001

Abstract

The interaction of monetary and fiscal policies is a crucial issue in a highly integrated economic area as the European Union. We argue that EMU, which introduced a common monetary policy and restrictions on fiscal policy at the national level, increases the need for macroeconomic policy cooperation. To study the effects of policy cooperation we compare the effects of three alternative policy regimes in a stylized dynamic model of a monetary union: (i) noncooperative monetary and fiscal policies, (ii) partial cooperation, and (iii) full cooperation both in symmetric and asymmetric settings where countries differ in structural characteristics, policy preferences and/or bargaining power. The paper introduces an analysis of coalitional behavior in a dynamic setting into the literature.

JEL Classification: C73, E17, E52, E61, F33, F42

Suggested Citation

van Aarle, Bas and Engwerda, Jacob C. and Plasmans, Joseph E. J. and Weeren, Arie, Monetary and Fiscal Policy Design Under Emu: A Dynamic Game Approach (March 2000). Available at SSRN: https://ssrn.com/abstract=263949 or http://dx.doi.org/10.2139/ssrn.263949

Bas Van Aarle (Contact Author)

Leuven Centre for Irish Studies LCIS ( email )

Janseniusstraat 1
Leuven, 3000
Belgium
+32 16 310433 (Phone)
+32 16 310431 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.cesifo.de

Radboud University Nijmegen - Department of Economics ( email )

P.O.Box 9108
6500 HK Nijmegen
Netherlands
+31 24 3616172 (Phone)
+31 24 3611846 (Fax)

Jacob C. Engwerda

retiree ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 13 466 2174 (Phone)
+31 13 466 3280 (Fax)

Joseph E. J. Plasmans

University of Antwerp - Department of Economics ( email )

Prinsstraat 13
Antwerp, B-2000
Belgium

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Tilburg University

Postbus 90153
Tilburg, DC Noord-Brabant 5000 LE
Netherlands

Arie Weeren

University of Antwerp ( email )

Prinsstraat 13
Antwerpen, B-2000
Belgium

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