NDLI: United we stand: on the macroeconomics of a Fiscal union

Content Provider	Springer Nature Link
Author	Neck, Reinhard Blueschke, Dmitri
Copyright Year	2016
Abstract	In this paper, we apply dynamic tracking games to macroeconomic policy making in a monetary union. We use a small stylized nonlinear two-country macroeconomic model of a monetary union for analyzing the interactions between two fiscal (governments: “core” and “periphery”) and one monetary (central bank) policy makers, assuming different objective functions of these decision makers. Using the OPTGAME algorithm, we calculate numerical solutions for cooperative (Pareto optimal) and non-cooperative games (feedback Nash). We show how the policy makers react to adverse demand shocks. We investigate the consequences of three scenarios: decentralized fiscal policies controlled by independent governments (the present situation), centralized fiscal policy (a fiscal union) with an independent central bank (pure fiscal union), and a fully centralized monetary and fiscal union. For the latter two scenarios, we demonstrate the importance of different assumptions about the joint objective function corresponding to different weights for the two governments in the design of the common fiscal policy. We show that a fiscal union with weights corresponding to the number of states in each of the blocs gives better results than non-cooperative policy making. When one bloc dominates the fiscal union, decentralized policies yield lower overall losses than the pure fiscal union and the monetary and fiscal union.
Starting Page	333
Ending Page	347
Page Count	15
File Format	PDF
ISSN	03408744
Journal	Empirica
Volume Number	43
Issue Number	2
e-ISSN	15736911
Language	English
Publisher	Springer US
Publisher Date	2016-04-02
Publisher Place	New York
Access Restriction	One Nation One Subscription (ONOS)
Subject Keyword	Dynamic game Feedback Nash equilibrium Pareto solution Monetary union Fiscal union Macroeconomics Public debt European Integration International Economics Macroeconomics/Monetary Economics//Financial Economics Econometrics Industrial Organization Public Finance & Economics
Content Type	Text
Resource Type	Article
Subject	Geography, Planning and Development Development Economics and Econometrics

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3	National Digital Library of India Office, Indian Institute of Technology Kharagpur	The administrative and infrastructural headquarters of the project	Dr. B. Sutradhar bsutra@ndl.gov.in
4	Project PI / Joint PI	Principal Investigator and Joint Principal Investigators of the project	Dr. B. Sutradhar bsutra@ndl.gov.in Prof. Saswat Chakrabarti will be added soon
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