In a standard framework of international monetary policy games we show that countries will prefer to split up into several coalition blocs of a smaller size rather than forming one big coalition. Depending on the strategic position between the coalitions in an equilibrium there will be either...

Since the Helsinki European Council of December 1999, a process of increased coordination of fiscal policies in the area of the Euro seems to be on its way. In this paper I examine this process from the point of view of the independence of the European Central Bank (ECB). The interaction of the...

In this paper we examine some of the issues which will arise if the European Central Bank adopts "direct inflation" targeting after the adoption of the single currency in Europe. One issue is how big the deviations in national inflation rates form the European average might be. Another is the...

The size of a bloc of countries practising some form of coordination of monetary policy is limited by the incentive to free ride that the formation of the bloc creates. However, when the threat of a trade war is introduced, this restriction on the size of the bloc is diminished.

We wish to analyse the new rules in the European fiscal and monetary environment, and to investigate the effects of fiscal and monetary activism in Europe. The new European Central Bank has to decide on its monetary policy stance and we aim in this paper to contribute to the debate of the best...

We study the prospective operation of the Stability Pact by stochastic simulation. Using a forward-looking multi-country macroeconometric model, NiGEM, comprising individual blocks for 10 Euroland economies, the Pact's provisions are formalized in detail, and alternative monetary and fiscal...

Since the writing of David Hume, in the eighteenth century, there has been a general agreement amogst economists that an increase in the stock of money leads, initially, to an increase in economic activity. Most writer have attributed the real effects of money, in the short run, to mistaken...

A well-known result from the analysis of the monetary policy coordination of two countries is that coordination of the two policies pareto-dominates the outcome of the non-cooperative game. Hence, both countries will always have an incentive to form a Union when it is ensured that the other...

This paper characterises rules-based fiscal policy setting. Basically, we translate a standard monetary policy rule into a simple fiscal policy rule. We then infer on fiscal policymakers' reaction coefficients by testing the rule with GMM. Interaction is also tested directly by the inclusion of...