Monetary and Fiscal Policy Design under EMU: A Dynamic Game Approach

Abstract

This paper analyzes the problem of designing macroeconomic stabilization policies within the European Monetary Union (EMU) as a dynamic game between a centralized monetary authority, the European Central Bank (ECB), and national fiscal policy makers. Non-cooperative feedback Nash equilibrium and cooperative Nash bargaining solutions are determined under various assumptions about rationing regimes in goods and labor markets and structural characteristics of the economies involved.