Tham khảo tài liệu 'fw: monetary and fiscal strategies in the world economy_2', tài chính - ngân hàng, ngân hàng - tín dụng phục vụ nhu cầu học tập, nghiên cứu và làm việc hiệu quả | 1. The Model 57 central bank is zero inflation in America. In case B the targets of the European central bank are zero inflation and zero unemployment in Europe. And the targets of the American central bank are zero inflation and zero unemployment in America. In case C the European central bank has a single target that is zero inflation in Europe. By contrast the American central bank has two conflicting targets that is zero inflation and zero unemployment in America. This chapter deals with case A and the next chapters deal with cases B and C. The target of the European central bank is zero inflation in Europe. The instrument of the European central bank is European money supply. By equation 3 the reaction function of the European central bank is 2M1 - 2B1 M2 5 Suppose the American central bank lowers American money supply. Then as a response the European central bank lowers European money supply. The target of the American central bank is zero inflation in America. The instrument of the American central bank is American money supply. By equation 4 the reaction function of the American central bank is 2M2 - 2B2 M1 6 Suppose the European central bank lowers European money supply. Then as a response the American central bank lowers American money supply. The Nash equilibrium is determined by the reaction functions of the European central bank and the American central bank. The solution to this problem is as follows 3M1 - 4B1 - 2B2 7 3M2 - 4B2 - 2B1 8 Equations 7 and 8 show the Nash equilibrium of European money supply and American money supply. As a result there is a unique Nash equilibrium. According to equations 7 and 8 an increase in B1 causes a decline in both 58 Monetary Interaction between Europe and America Case A European money supply and American money supply. A unit increase in B1 causes a decline in European money supply of units and a decline in American money supply of units. From equations 1 7 and 8 follows the equilibrium rate of .
