Macroeconomic Policy Design in the European Monetary Union: A Numerical Game Approach |
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Authors: | Reinhard Neck Gottfried Haber Warwick J. McKIBBIN |
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Affiliation: | (1) Department of Economics, University of Klagenfurt, Austria;(2) Australian National University, Australia & The Brookings Institution, Washington, DC e-mail |
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Abstract: | Optimal economic reactions of European policy-makers on exogenous shocks are determined by simulating a global macroeconomic model under different institutional arrangements. In particular, it is investigated whether discretionary or rule-based policies and whether non-cooperative or cooperative policies for Europe result in a better performance as measured by intertemporal objective functions. The results show that the answers to these questions depend strongly on the nature of the shock to which European economies are exposed. For a negative supply shock, rule-based policies dominate, whereas for a negative demand shock, cooperative fiscal policy-making within the European Monetary Union gives the best results. |
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Keywords: | Cooperation dynamic game European integration fiscal policy monetary policy rules |
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