Dynamic Policy Interactions in a Monetary Union

This book studies the dynamics of monetary and fiscal interactions in the Euro Area. The policy makers are the European Central Bank and national governments. The primary target of the ECB is low inflation. And the primary target of a national government is low unemployment. However, there is a short-run trade-off between low inflation and low unemployment. Here the main focus is on sequential policy decisions. Another focus is on simultaneous and independent policy decisions. And a third focus is on policy cooperation. There are demand shocks, supply shocks, and mixed shocks. There are country-specific shocks and common shocks. The key question is: Given a shock, what are the dynamic characteristics of the resulting process?

Some Basic Models.- Monetary Policy in Europe.- Fiscal Policy in Germany.- First the Central Bank Decides, then the Governments Decide.- First the Governments Decide, then the Central Bank Decides.- Central Bank and Governments Decide Simultaneously and Independently: Cold-Turkey Policies.- Central Bank and Governments Decide Simultaneously and Independently: Gradualist Policies.- Central Bank and Government Cooperate.- Appendix.- Conclusion.- Result.- The Current Research Project.

Michael Carlberg is Professor at Helmut Schmidt University in Hamburg, Germany. His research is on Macroeconomics, Monetary Economics, and International Economics.