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FW: Monetary and Fiscal Strategies in the World Economy_8

Tham khảo tài liệu 'fw: monetary and fiscal strategies in the world economy_8', tài chính - ngân hàng, ngân hàng - tín dụng phục vụ nhu cầu học tập, nghiên cứu và làm việc hiệu quả | 2. Fiscal Policies in Europe and America Absence of a Deficit Target 251 2.2 Fiscal Cooperation between Europe and America The policy makers are the European government and the American government. The targets of fiscal cooperation are zero unemployment in Europe and America. The instruments of fiscal cooperation are European government purchases and American government purchases. There are two targets and two instruments. We assume that the European government and the American government agree on a common loss function. The amount of loss depends on unemployment in Europe and America. The policy makers set European government purchases and American government purchases so as to minimize the common loss. The cooperative equilibrium is determined by the first-order conditions for a minimum loss. It yields the optimum levels of European government purchases and American government purchases. As a result the cooperative equilibrium is identical to the corresponding Nash equilibrium. That is to say fiscal cooperation is equivalent to fiscal interaction. For some numerical examples see Section 2.1. 252 Conclusion 3. Fiscal Policies in Europe and America Presence of a Deficit Target 3.1. Fiscal Interaction between Europe and America 1 The model. An increase in European government purchases lowers European unemployment. On the other hand it raises European inflation. And what is more it raises the European structural deficit. Correspondingly an increase in American government purchases lowers American unemployment. On the other hand it raises American inflation. And what is more it raises the American structural deficit. An essential point is that fiscal policy in Europe has spillover effects on America and vice versa. An increase in European government purchases lowers American unemployment and raises American inflation. Similarly an increase in American government purchases lowers European unemployment and raises European inflation. In the numerical example a unit .