This paper analyzes the problem of designing macroeconomic stabilization policies within the European Monetary Union (EMU) as a dynamic game between a centralized monetary authority, the European Central Bank (ECB), and national fiscal policy makers. Non-cooperative feedback Nash equilibrium and...

The interaction of monetary and fiscal policies is a crucial issue in a highly integrated economic area as the European Union. We argue that EMU, which introduced a common monetary policy and restrictions on fiscal policy at the national level, increases the need for macroeconomic policy...

The paper considers the issue of whether a supranational fiscal policy in Europe is needed, and, if so what responsibilities it should undertake. The literature on endogenous growth and the principle of subsidiarity suggest that such a policy should be limited to externalities or economies of...