... to a decline in aggregate demand. In terms of the
model there is an increase in A of 2 units and a decline in B of equally 2 units.
Monetary and Fiscal Cooperation
42
of inflation by 1 percentage ... unit increase in money supply lowers the
rate of unemployment by 1 percentage point. On the other hand, it raises the rate
Monetary and Fiscal Inte...
... supply of 4 units and an increase in
2. Some Numerical Examples
84
22
22 2
Lu=π + (6)
2
L is the loss to the American central bank caused by inflation and
unemployment in America. We assume ...
111 2
uAM0.5M=− + (1)
22 2 1
uAM0.5M=− + (2)
11 1 2
B M 0.5Mπ= + − (3)
22 2 1
BM0.5Mπ= + − (4)
And the Nash equilibrium can be described by two equati...
... conditions for a minimum loss are:
1 121 21 2
5M 2A A 2B B 3G 4M=−−+−+ (7)
22 121 21
5M 2A A 2B B 3G 4M=−−+−+ (8)
1 121 2 12
5G 2A A 2B B 3M 4G=+−−−− (9)
22 121 21
5G 2A A 2B B 3M 4G=+−−−− ... Europe and America
151
2
11 21 2
2
22 12 1
2
11 21 2
2
22 12 1
L (B M 0.5M G 0.5G )
(B M 0.5M G 0.5G )
(A M 0.5M G 0.5G )
(A M 0.5M G 0.5G )
=+− ++
++− ++
+−+ −−
+−+...
... follows:
1 121 2
6M A 2A 9B 6B 18T=− − − − − (19)
22 121
6M A 2A 9B 6B 18T=− − − − − (20 )
111
2G A B 2T=++ (21 )
22 2
2G A B 2T=++ (22 )
Equations (19) to (22 ) show the Nash equilibrium ...
22 222 2
121 2 12
Luuss=π+π++++
(7)
L is the loss caused by inflation, unemployment, and the structural deficit in each
of the regions. We assume equal weights...
... minimum loss are:
1 121 21 2
5M 2A A 2B B 3G 4M=−−+−+ (9)
22 121 21
5M 2A A 2B B 3G 4M=−−+−+ (10)
1 121 21 12
7G 2A A 2B B 2T 3M 4G=+−−+−− (11)
22 121 221
7G 2A A 2B B 2T 3M 4G=+−−+−− ( 12) ... Unemploy-
1. Monetary Policies in Europe and America
22 1
22 222 2
121 2 12
Luuss=π+π++++
(1)
The initial loss is zero. The demand shock in Europe causes a loss...
... in Europe, monetary interaction
lowers inflation in Europe. On the other hand, it raises unemployment there.
27 9
27 4
5) Comparing monetary- fiscal interaction A and monetary- fiscal interaction ...
28 1
2. Monetary and Fiscal Policies in Europe and America
2. 1. Monetary and Fiscal Interaction
between Europe and America
The targ...
... 1
uAM0.5M=− + (2)
11 1 2
B M 0.5Mπ= + − (3)
22 2 1
BM0.5Mπ= + − (4)
And the Nash equilibrium can be described by two equations:
1 121 2
3M 2A A 2B B=+−− (5)
22 121
3M 2A A 2B B=+−− (6) ... refers to the common
supply shock. In terms of the model there is an increase in
1
B of 3 units, as there
is in
1
A . And there is an increase in
2
B of 3 unit...
... −− (2)
11 1 21 2
B M 0.5M G 0.5Gπ= + − + + (3)
22 2 12 1
B M 0.5M G 0.5Gπ= + − + + (4)
M. Carlberg, Monetary and Fiscal Strategies in the World Economy, 141
DOI 10.1007/978-3-6 42- 10476-3_19, ...
inflation function and the unemployment function. Taking account of equations
(2) and (4), the loss function of the American central bank can be written a...
... 1
2
22 12 1
2
22
L(BM0.5MG0.5G)
(A M 0.5M G 0.5G )
(G T )
=+− ++
+−+ −−
+−
Then the first-order conditions for a minimum loss are:
22 2 21 1
2M A B 2G G M=−− −+ (15)
22 22 211
3G A B T 2M ... this problem is as follows:
1 121 2
3M 2A A 2B B 9T=+−−− (19)
22 121
3M 2A A 2B B 9T=+−−− (20 )
1
GT= (21 )
2
GT= (22 )
Equations (19) to (22 ) show the Nash e...