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FW: Monetary and Fiscal Strategies in the World Economy_7

Tham khảo tài liệu 'fw: monetary and fiscal strategies in the world economy_7', tài chính - ngân hàng, ngân hàng - tín dụng phục vụ nhu cầu học tập, nghiên cứu và làm việc hiệu quả | 218 Monetary and Fiscal Cooperation between Europe and America unemployment functions and the structural deficit functions. Taking account of equations 1 to 6 the loss function under policy cooperation can be written as follows L B1 M1 - 0.5M2 G1 0.5G2 2 B2 M2 - 0.5M1 G2 0.5G1 2 A1 - M1 0.5M2 - G1 - 0.5G2 2 A2 - M2 0.5M1 - G2 - 0.5G1 2 G1 - T1 2 G2 - T2 2 8 Then the first-order conditions for a minimum loss are 5M1 2A1 - A2 - 2B1 B2 - 3G1 4M2 9 5M2 2A2 - A1 - 2B2 B1 - 3G2 4M1 10 7G1 2A1 A2 - 2B1 - B2 2T1 - 3M1 - 4G2 11 7G2 2A2 A1 - 2B2 - B1 2T2 - 3M2 - 4G1 12 Equation 9 shows the first-order condition with respect to European money supply. Equation 10 shows the first-order condition with respect to American money supply. Equation 11 shows the first-order condition with respect to European government purchases. And equation 12 shows the first-order condition with respect to American government purchases. The cooperative equilibrium is determined by the first-order conditions for a minimum loss. We assume T T1 T2. The solution to this problem is as follows 3M1 2A1 A2 - 2B1 - B2 - 9T 13 3M2 2A2 A1 - 2B2 - B1 - 9T 14 G1 T 15 G2 T 16 1. The Model 219 Equations 13 to 16 show the cooperative equilibrium of European money supply American money supply European government purchases and American government purchases. As a result there is a unique cooperative equilibrium. An increase in A1 causes an increase in European money supply an increase in American money supply no change in European government purchases and no change in American government purchases. A unit increase in A1 causes an increase in European money supply of 0.67 units and an increase in American money supply of 0.33 units. As a result monetary and fiscal cooperation can reduce the loss caused by inflation unemployment and the structural deficit. Monetary and fiscal cooperation is different from monetary and fiscal interaction. This applies to cases A B and C of monetary and fiscal interaction see Part Seven.