Coalitional Behavior in an open-loop LQ-differential game for the EMU
Number of pages
SourceIfo-Studien, 48, 2, (2002), pp. 207-230
Article / Letter to editor
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Economische theorie en economisch beleid
SubjectInstitutional Shifts in Government and Governance in a Comparative and International Context
The EMU is an highly integrated economic area where externalities occur. Therefore, in this context interaction of monetary and fiscal policies is a crucial issue. This paper fo-cuses on how coalitions among policy-makers are formed and what are their effects on the stabilization of output and price. We emphasize the role played by the institutional design of "cooperation forums" (as, e.g., the ECOFIN). If the coalition formation game is played without communication among the policy-makers full cooperation is either impossible or limited. On the other hand, if policy-makers can communicate, full cooperation becomes a possible equilibrium, while the complete non-cooperative solution is, in general, not a sustainable equilibrium. This contrast begins to provide broad support for the view that in-stitutions and international forums for discussions can play a crucial role in achieving in-ternational cooperation even when these institutions are not endowed with enforcement powers.
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