Dynamic modelling of monetary and fiscal cooperation among nations
type: Item
instance of: scholarly article
title: Dynamic modelling of monetary and fiscal cooperation among nations
zbMATH Open document ID: 1107.91073
DOI: 10.1007/0-387-27931-8
author: Josph Plasmans
author: Bas van Aarle
author: Giovanni Di Bartolomeo
author: J. C. Engwerda
author: Tomasz P. Michalak
published in: Dynamic Modeling and Econometrics in Economics and Finance
publication date: 2006-04-06T00:00:00Z
review text: This book applies a dynamic game theory framework to explore aspects of the theory of monetary unions. The specific example in mind is the European Monetary Union (EMU). The objective of each central bank is set as a dynamic optimization problem in which the central bank endeavors to minimize a loss function which penalizes high inflation, low output (hence high levels of unemployment) and high fiscal deficits. The authors assume a New-Keynesian macroeconomic framework in which a (New Keynesian) Phillips curve is present. This Phillips curve essentially postulates that the monetary authorities face some trade-off between inflation and recession in the short-run. The dynamic behavior of the aggregate output, price level, exchange rates and other relevant variables can be described by a set of ordinary first order linear differential equations, and the objective of each central bank is to minimize the flow of the quadratic loss function previously described. Questions which are explored include: the benefits of co-operation versus non-co-operation, various equilibrium strategies, the endogenous formation of coalitions, problems of enlargement of the unions, and regional policy co-ordination. The main strength of this book is its high profile subject matter. The benefits and pitfalls of monetary unions are being vigorously debated in Europe, at the moment, with strong attempts at coaching from the sideline by not-so-disinterested American-based economists and politicians. This book applies a very standard version of dynamic game theory. It is very honest in not claiming any novelty in that respect. It also borrows a long rehearsed version of macroeconomic modeling, known as the New Keynesian theory. Its contribution is in exploring a number of issues under the single roof of their representation of each economy as a system of linear differential equations. One aspect, which is obviously absent from this exercise, is of the congruence of this modeling with the data. Onc…
reviewed by: Gabriel Talmain
Mathematics Subject Classification ID: 91B64
Mathematics Subject Classification ID: 91A12
Mathematics Subject Classification ID: 91-02
Mathematics Subject Classification ID: 91A06
Mathematics Subject Classification ID: 91B62
Mathematics Subject Classification ID: 90C39
zbMATH DE Number: 5017894
zbMATH Keywords: monetary union
zbMATH Keywords: optimal currency area
zbMATH Keywords: New Keynesian open economy macroeconomics
zbMATH Keywords: EMU
MaRDI profile type: Publication
full work available at URL: https://doi.org/10.1007/0-387-27931-8
OpenAlex ID: W2140738485
description: scientific article; zbMATH DE number 5017894