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David Vines - One of the best experts on this subject based on the ideXlab platform.
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Five-Equation Macroeconomics: A Simple View of the Interactions between Fiscal Policy and Monetary Policy
Social Science Research Network, 2006Co-Authors: David Vines, Tatiana Kirsanova, Sven Jari StehnAbstract:This paper studies the interactions of Fiscal and monetary policy when they stabilise a single economy against shocks in a dynamic setting. We assume that Fiscal and monetary policies both stabilise the economy only by causing changes to aggregate demand. Our findings are as follows. If the both policymakers are benevolent, then the best outcome is achieved when the Fiscal authority allows monetary policy to perform nearly all of the burden of stabilising the economy. If the monetary Authorities are benevolent, but the Fiscal Authorities have distorted objectives, then a Nash equilibrium will result in large welfare losses: unilateral efforts by each authority to stabilise the economy will result in a rapid accumulation of public debt. However, if the monetary Authorities are benevolent and the Fiscal Authorities have distorted objectives, but there is a regime of Fiscal leadership, then the outcome will be very nearly as good as it is in the regime in which both policymakers are benevolent.
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FIVE-EQUATION MACROECONOMICS A SIMPLE VIEW OF THE INTERACTIONS BETWEEN Fiscal POLICY AND MONETARY POLICY *
Research Papers in Economics, 2006Co-Authors: Tatiana Kirsanova, Sven Jari Stehn, David VinesAbstract:This paper studies the interactions of Fiscal and monetary policy when they stabilise a single economy against shocks in a dynamic setting. We assume that Fiscal and monetary policies both stabilise the economy only by causing changes to aggregate demand. Our findings are as follows. If the both policymakers are benevolent, then the best outcome is achieved when the Fiscal authority allows monetary policy to perform nearly all of the burden of stabilising the economy. If the monetary Authorities are benevolent, but the Fiscal Authorities have distorted objectives, then a Nash equilibrium will result in large welfare losses: unilateral efforts by each authority to stabilise the economy will result in a rapid accumulation of public debt. However, if the monetary Authorities are benevolent and the Fiscal Authorities have distorted objectives, but there is a regime of Fiscal leadership, then the outcome will be very nearly as good as it is in the regime in which both policymakers are benevolent.
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The Assessment: Macroeconomic Policy after EMU
Social Science Research Network, 1999Co-Authors: Christopher Allsopp, David VinesAbstract:In this paper we discuss the emergence of the new European macroeconomic structure within EMU. We focus on three important elements: the wage-fixing Authorities in each country, the Fiscal Authorities in each country, and the single European Central Bank (ECB). We identify serious problems which might arise in coordinating both the wage-setters and the Fiscal Authorities, and argue that these problems could be exacerbated if the ECB conducts monetary policy inappropriately. In the light of this we provide recommendations for the conduct of monetary policy by the ECB. The paper also briefly discusses financial stability issues and the interaction between the countries in EMU and the rest of the world.
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The Pivotal Role of the ECB in the New Europe
Economic Outlook, 1999Co-Authors: Christopher Allsopp, David VinesAbstract:With the successful launch of EMU at the beginning of January 1999, the key question is how well the new grouping of 11 countries – Euroland – will perform macroeconomically. Strains and difficulties between countries appear solvable if the context is a healthy growing Europe, but are more dangerous if the group as a whole performs badly. In this article Christopher Allsopp and David Vines argue that the European Central Bank has a pivotal role. This is not just for the obvious reason, enshrined in the Treaty, that the independent Bank is charged with ensuring price stability. Beyond that, the ECB will necessarily be the main co-ordinating institution for macroeconomic policy. The single monetary authority interacts, for good or ill, with eleven national governments, eleven Fiscal Authorities and eleven national labour markets. The game is rigged in an unfamiliar way.
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the assessment macroeconomic policy after emu
Oxford Review of Economic Policy, 1998Co-Authors: Christopher Allsopp, David VinesAbstract:In this paper we discuss the emergence of the new European macroeconomic structure within EMU. We focus on three important elements: the wage-fixing Authorities in each country, the Fiscal Authorities in each country, and the single European Central Bank (ECB). We identify serious problems which might arise in coordinating both the wage-setters and the Fiscal Authorities, and argue that these problems could be exacerbated if the ECB conducts monetary policy inappropriately. In the light of this we provide recommendations for the conduct of monetary policy by the ECB. The paper also briefly discusses financial stability issues and the interaction between the countries in EMU and the rest of the world. Copyright 1998 by Oxford University Press.
Christa Van Wijnbergen - One of the best experts on this subject based on the ideXlab platform.
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The Case for a Symmetric Reaction. Function of the European Central Bank
Social Science Research Network, 2005Co-Authors: Donatella Gatti, Christa Van WijnbergenAbstract:In a macro-economic framework where the European Central Bank targets individual country data, the nature of strategic interactions between Fiscal Authorities in the euro-zone can be described as a stag hunt game with (at least) two equilibria that can be pareto-ranked. In fact we show that, because of the indiscriminate nature of its monetary response, an ECB strategy of monetary retaliation to any individual country's over-expenditure affects all eleven countries to the same extent. This collective effect is similar to the teacher's old favorite "all children stay behind in the class if one misbehaves". This mechanism, we show, makes the game between Fiscal Authorities a multiple equilibria co-ordination game. We subsequently address the problem of equilibrium selection that is of particular importance to co-ordination games. Following Kandori et al. (1993), we apply Harsanyi and Selten's (1988) riskdominance criterion to single out the conditions for Fiscal restraint to emerge as the equilibrium selected by interacting actors. Our main conclusions are that the ECB can ensure convergence of Fiscal Authorities upon the pareto-optimal equilibrium (that is, Fiscal restraint) by adopting a reward-oriented, counter-cyclical strategy that compensates Fiscal Authorities at the output level both for giving up Fiscal discretion and for incurring the risk of being hit by a monetary tightening in response to developments elsewhere in the euro-economy. This means that interest rates' movements should smoothen economic fluctuations in order to give economic actors sufficient incentives to maintain restraint.(This abstract was borrowed from another version of this item.)
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Co‐ordinating Fiscal Authorities in the euro‐zone: a key role for the ECB
Oxford Economic Papers, 2002Co-Authors: Donatella Gatti, Christa Van WijnbergenAbstract:This paper examines the conditions for Fiscal restraint to emerge as Nash equilibrium in the game between Fiscal Authorities in a monetary union and discusses the implications for the ECB's monetary strategy. We show that Fiscal Authorities fail to internalize the adverse area-wide effects of their policies when the ECB targets unionwide aggregates. To address this co-ordination failure, we propose that the ECB reacts to Fiscal restraint by implementing a monetary reward. Applying the pareto- and risk dominance criteria to the ensuing co-ordination game, we show that the ECB can ensure convergence upon Fiscal restraint by adopting a weakly countercyclical reaction function.
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co ordinating Fiscal Authorities in the euro zone a key role for the ecb
Social Science Research Network, 2001Co-Authors: Donatella Gatti, Christa Van WijnbergenAbstract:This paper examines the conditions for Fiscal restraint to emerge as Nash equilibrium in the game between Fiscal Authorities in a monetary union and discusses the implications for the ECB`s monetary strategy. We show that Fiscal Authorities fail to internalize the adverse area-wide effects of their policies when the ECB targets union-wide aggregates. To address this co-ordination failure, we propose that the ECB reacts to Fiscal restraint by implementing a monetary reward. Applying the pareto- and risk dominance criteria to the ensuing co-ordination game, we show that the ECB can ensure convergence upon Fiscal restraint by adopting a weakly countercyclical reaction function.
Werner W Pommerehne - One of the best experts on this subject based on the ideXlab platform.
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tax harmonization and tax competition in the european union lessons from switzerland
Journal of Public Economics, 1996Co-Authors: Gebhard Kirchgassner, Werner W PommerehneAbstract:Abstract This paper presents empirical evidence on individual income tax competition in Switzerland. Tax competition has some influence on the spread of people with high income over the cantons, and it is partly capitalised in dwelling rents. However, it neither leads to a collapse of public good supply nor makes redistribution by the Fiscal Authorities impossible. Thus, if tax competition works well in Switzerland there is no reason why it should have disastrous effects in a future European Union.
Donatella Gatti - One of the best experts on this subject based on the ideXlab platform.
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The Case for a Symmetric Reaction. Function of the European Central Bank
Social Science Research Network, 2005Co-Authors: Donatella Gatti, Christa Van WijnbergenAbstract:In a macro-economic framework where the European Central Bank targets individual country data, the nature of strategic interactions between Fiscal Authorities in the euro-zone can be described as a stag hunt game with (at least) two equilibria that can be pareto-ranked. In fact we show that, because of the indiscriminate nature of its monetary response, an ECB strategy of monetary retaliation to any individual country's over-expenditure affects all eleven countries to the same extent. This collective effect is similar to the teacher's old favorite "all children stay behind in the class if one misbehaves". This mechanism, we show, makes the game between Fiscal Authorities a multiple equilibria co-ordination game. We subsequently address the problem of equilibrium selection that is of particular importance to co-ordination games. Following Kandori et al. (1993), we apply Harsanyi and Selten's (1988) riskdominance criterion to single out the conditions for Fiscal restraint to emerge as the equilibrium selected by interacting actors. Our main conclusions are that the ECB can ensure convergence of Fiscal Authorities upon the pareto-optimal equilibrium (that is, Fiscal restraint) by adopting a reward-oriented, counter-cyclical strategy that compensates Fiscal Authorities at the output level both for giving up Fiscal discretion and for incurring the risk of being hit by a monetary tightening in response to developments elsewhere in the euro-economy. This means that interest rates' movements should smoothen economic fluctuations in order to give economic actors sufficient incentives to maintain restraint.(This abstract was borrowed from another version of this item.)
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Co‐ordinating Fiscal Authorities in the euro‐zone: a key role for the ECB
Oxford Economic Papers, 2002Co-Authors: Donatella Gatti, Christa Van WijnbergenAbstract:This paper examines the conditions for Fiscal restraint to emerge as Nash equilibrium in the game between Fiscal Authorities in a monetary union and discusses the implications for the ECB's monetary strategy. We show that Fiscal Authorities fail to internalize the adverse area-wide effects of their policies when the ECB targets unionwide aggregates. To address this co-ordination failure, we propose that the ECB reacts to Fiscal restraint by implementing a monetary reward. Applying the pareto- and risk dominance criteria to the ensuing co-ordination game, we show that the ECB can ensure convergence upon Fiscal restraint by adopting a weakly countercyclical reaction function.
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co ordinating Fiscal Authorities in the euro zone a key role for the ecb
Social Science Research Network, 2001Co-Authors: Donatella Gatti, Christa Van WijnbergenAbstract:This paper examines the conditions for Fiscal restraint to emerge as Nash equilibrium in the game between Fiscal Authorities in a monetary union and discusses the implications for the ECB`s monetary strategy. We show that Fiscal Authorities fail to internalize the adverse area-wide effects of their policies when the ECB targets union-wide aggregates. To address this co-ordination failure, we propose that the ECB reacts to Fiscal restraint by implementing a monetary reward. Applying the pareto- and risk dominance criteria to the ensuing co-ordination game, we show that the ECB can ensure convergence upon Fiscal restraint by adopting a weakly countercyclical reaction function.
Sven Jari Stehn - One of the best experts on this subject based on the ideXlab platform.
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Five-Equation Macroeconomics: A Simple View of the Interactions between Fiscal Policy and Monetary Policy
Social Science Research Network, 2006Co-Authors: David Vines, Tatiana Kirsanova, Sven Jari StehnAbstract:This paper studies the interactions of Fiscal and monetary policy when they stabilise a single economy against shocks in a dynamic setting. We assume that Fiscal and monetary policies both stabilise the economy only by causing changes to aggregate demand. Our findings are as follows. If the both policymakers are benevolent, then the best outcome is achieved when the Fiscal authority allows monetary policy to perform nearly all of the burden of stabilising the economy. If the monetary Authorities are benevolent, but the Fiscal Authorities have distorted objectives, then a Nash equilibrium will result in large welfare losses: unilateral efforts by each authority to stabilise the economy will result in a rapid accumulation of public debt. However, if the monetary Authorities are benevolent and the Fiscal Authorities have distorted objectives, but there is a regime of Fiscal leadership, then the outcome will be very nearly as good as it is in the regime in which both policymakers are benevolent.
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FIVE-EQUATION MACROECONOMICS A SIMPLE VIEW OF THE INTERACTIONS BETWEEN Fiscal POLICY AND MONETARY POLICY *
Research Papers in Economics, 2006Co-Authors: Tatiana Kirsanova, Sven Jari Stehn, David VinesAbstract:This paper studies the interactions of Fiscal and monetary policy when they stabilise a single economy against shocks in a dynamic setting. We assume that Fiscal and monetary policies both stabilise the economy only by causing changes to aggregate demand. Our findings are as follows. If the both policymakers are benevolent, then the best outcome is achieved when the Fiscal authority allows monetary policy to perform nearly all of the burden of stabilising the economy. If the monetary Authorities are benevolent, but the Fiscal Authorities have distorted objectives, then a Nash equilibrium will result in large welfare losses: unilateral efforts by each authority to stabilise the economy will result in a rapid accumulation of public debt. However, if the monetary Authorities are benevolent and the Fiscal Authorities have distorted objectives, but there is a regime of Fiscal leadership, then the outcome will be very nearly as good as it is in the regime in which both policymakers are benevolent.