Tham khảo tài liệu 'monetary and fiscal strategies in the world economy by michael carlberg_4', tài chính - ngân hàng, ngân hàng - tín dụng phục vụ nhu cầu học tập, nghiên cứu và làm việc hiệu quả | 122 Fiscal Interaction between Europe and America 2. Some Numerical Examples For easy reference the basic model is reproduced here u1 A1 - G1 - 1 u2 A2 - G2 - 2 n1 B1 G1 3 n2 B2 G2 4 s1 G1 - T 5 s2 G2 - T2 6 And the Nash equilibrium can be described by two equations 15G1 8A1 - 2A2 6T 7 15G2 8A2 - 2A1 6T 8 It proves useful to study six distinct cases - a demand shock in Europe - a supply shock in Europe - a mixed shock in Europe - another mixed shock in Europe - a common demand shock - a common supply shock. 1 A demand shock in Europe. In each of the regions let initial unemployment be zero let initial inflation be zero and let the initial structural deficit be zero as well. Step one refers to a decline in the demand for European goods. In terms of the model there is an increase in A1 of 3 units and a decline in B1 of equally 3 units. Step two refers to the outside lag. Unemployment in Europe goes from zero to 3 percent. Unemployment in America stays at zero percent. Inflation in Europe goes from zero to - 3 percent. Inflation in America 2. Some Numerical Examples 123 stays at zero percent. The structural deficit in Europe stays at zero percent as does the structural deficit in America. Step three refers to the policy response. According to the Nash equilibrium there is an increase in European government purchases of units and a reduction in American government purchases of units. Step four refers to the outside lag. Unemployment in Europe goes from 3 to percent. Unemployment in America goes from zero to - percent. Inflation in Europe goes from - 3 to - percent. Inflation in America goes from zero to percent. The structural deficit in Europe goes from zero to percent. And the structural deficit in America goes from zero to - percent. Table presents a synopsis. Table Fiscal Interaction between Europe and America A Demand Shock in Europe Europe America Unemployment 0 Unemployment 0 Inflation 0 Inflation 0
