Di Bartolomeo, Giovanni Engwerda, Jacob Plasmans, Joseph van Aarle, Bas Michalak, Tomasz
Year of Publication:
CESifo Working Paper 1376
This paper studies the institutional design of the coordination of macroeconomic stabilization policies within a monetary union in the framework of linear quadratic differential games. A central role in the analysis plays the partitioned game approach of the endogenous coalition formation literature. The specific policy recommendations in the EMU context depend on the particular characteristics of the shocks and the economic structure. In the case of a common shock, fiscal coordination or full policy coordination is desirable. When asymmetric shocks are considered, fiscal coordination improves the performance but full policy coordination doesn?t produce further gains in policymakers? welfare.
macroeconomic stabilization EMU coalition formation linear quadratic differential games