Macroeconomic Stabilization Policies in the Emu: Spillovers, Asymmetries, and Institutions
38 Pages Posted: 14 Jan 2005
Date Written: January 2005
Abstract
This paper studies the institutional design of the coordination of macroeconomic stabilization policies within a monetary union in the framework of linear quadratic differential games. A central role in the analysis plays the partitioned game approach of the endogenous coalition formation literature. The specific policy recommendations in the EMU context depend on the particular characteristics of the shocks and the economic structure. In the case of a common shock, fiscal coordination or full policy coordination is desirable. When asymmetric shocks are considered, fiscal coordination improves the performance but full policy coordination doesn't produce further gains in policymakers' welfare.
Keywords: Macroeconomic stabilization, EMU, coalition formation, linear quadratic differential games
JEL Classification: C70, E17, E58, E61, E63
Suggested Citation: Suggested Citation
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