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Together We Are Strong—Divided Still Stronger? Strategic Aspects of a Fiscal Union

In: Operations Research Proceedings 2015

Author

Listed:
  • D. Blueschke

    (Alpen-Adria-Universität Klagenfurt)

  • R. Neck

    (Alpen-Adria-Universität Klagenfurt)

Abstract

In this paper we present an application of dynamic tracking games to a monetary union. We use a small stylized nonlinear two-country macroeconomic model of a monetary union for analysing the interactions between two fiscal (governments) and one monetary (common central bank) policy makers. We introduce a negative asymmetric demand side shock describing the macroeconomic dynamics within a monetary union similar to the economic crisis (2007–2010) and the sovereign debt crisis (since 2010) in Europe. We investigate the welfare consequences of three scenarios: fiscal policies by independent governments (the present situation), centralized fiscal policy (a fiscal union) with an independent central bank, and a fully centralized fiscal and monetary union. For the latter two scenarios, we investigate the effects of different assumptions about the weights for the two governments in the cooperative agreement.

Suggested Citation

  • D. Blueschke & R. Neck, 2017. "Together We Are Strong—Divided Still Stronger? Strategic Aspects of a Fiscal Union," Operations Research Proceedings, in: Karl Franz Dörner & Ivana Ljubic & Georg Pflug & Gernot Tragler (ed.), Operations Research Proceedings 2015, pages 563-568, Springer.
    • Handle: RePEc:spr:oprchp:978-3-319-42902-1_76
    DOI: 10.1007/978-3-319-42902-1_76
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