Abstract
In this paper we present an application of the dynamic tracking games framework to a monetary union. We use a small stylized nonlinear two-country macroeconomic model of a monetary union for analyzing the interactions between fiscal (governments) and monetary (common central bank) policy makers, assuming different objective functions of these decision makers. Using the OPTGAME algorithm we calculate solutions for two game strategies: one cooperative (Pareto optimal) and one non-cooperative game type (the Nash game for the feedback information pattern). Applying the OPTGAME algorithm to the MUMOD1 model we show how the policy makers react to demand shocks according to these solution concepts. To this end we introduce two sequences of different demand side shocks on the monetary union. The first sequence includes a negative asymmetric demand side shock aimed at describing the dynamics in a monetary union in a situation similar to the economic crisis (2007–2010) and the sovereign debt crisis (since 2010) in Europe. The second sequence of shocks includes different kinds of demand side shocks and serves to discuss the best macroeconomic policy strategies for possible future scenarios.
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Notes
- 1.
See the official press release of the ECB from 5th June 2014.
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Neck, R., Blueschke, D. (2016). Strategic Macroeconomic Policies in a Monetary Union. In: Bednar-Friedl, B., Kleinert, J. (eds) Dynamic Approaches to Global Economic Challenges. Springer, Cham. https://doi.org/10.1007/978-3-319-23324-6_4
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DOI: https://doi.org/10.1007/978-3-319-23324-6_4
Publisher Name: Springer, Cham
Print ISBN: 978-3-319-23323-9
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