Monetary and fiscal policy-makers in the European economy and monetary union: Allies or Adversaries?

Reinhard Neck, Gottfried Haber, Warwick McKibbin

    Research output: Contribution to journalArticle

    Abstract

    Optimal monetary and fiscal policies within the European Economic and Monetary Union (EMU) are determined by simulating a global model under alternative assumptions about the objective function of the European Central Bank (ECB) and about cooperation vs. non-cooperation between monetary and fiscal policy-makers and among the latter. The results show the high effectiveness of fixed rules in the presence of supply-side shocks and the usefulness of cooperative discretionary measures against demand-side shocks. More generally, cooperation among fiscal policy-makers in the EMU is nearly always superior to non-cooperative equilibrium solutions, yielding a strong case for the coordination of fiscal policies.
    Original languageEnglish
    Pages (from-to)225-244
    JournalEmpirica
    Volume29
    DOIs
    Publication statusPublished - 2002

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