By Michael Carlberg
European financial unification appears to be like essentially the most very important occasions in foreign financial affairs because the breakdown of Bretton Woods. It pos es an enormous problem to imperative banks, governments, and labour unions. It opens up new fields of financial study which are either interesting and interesting. eu financial Union quantities to a swap of regime. definitely the Mundell Fleming version of the open economic climate does now not follow to Germany or France. the results of shocks and rules on output and costs must have replaced dramatically in dimension. a few of them may still even paintings within the wrong way now. the current booklet is a part of a bigger study undertaking on financial union, see Carlberg (1999, 2000, 2001, 2002, 2003). a few elements of this venture have been provided on the international Congress of the foreign fiscal organization in Lisbon. different components have been provided on the Macro examine staff of the German financial organization, on the Annual assembly of the Austrian fiscal organization in Klagenfurt, on the go au Workshop on overseas Economics, on the Halle Workshop on financial Economics, and on the examine Seminar on Macroeconomics in Freiburg. additionally, publication stories have been released within the fiscal magazine, Kyklos, the magazine of Economics, and the magazine of Economics and Statistics.
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Step 7 refers to fiscal policy. The output gap in Germany is zero. So there is no need for a change in Gerrnan government purchases. The output gap in France is 15. The fiscal policy multiplier in France is 1. So what is needed in France is an increase in French government purchases of 15. Step 8 refers to the output lag. The increase in French government purchases of 15 causes an increase in French output of 15. 5. 5. Step 9 refers to monetary policy. 5, and the output gap in France is zero. So there is no need for a change in union money supply.
The French government expects that, due to the increase in union money supply of 20, French output will rise to 1000. The expected output gap in Germany is 30. The fiscal policy multiplier in Germany is 1. So what is needed in Germany is an increase in German government purchases of 30. The expected output gap in France is zero. So there is no need for a change in French government purchases. Step 3 refers to the output lag. The increase in union money supply of 20 causes an increase in German output of 30 and an increase in French output of equally 30.
5. 5. And so on. 18. What are the dynarnic characteristics of this process? There is a one-time reduction in union money supply. There are repeated increases in German government purchases, as there are in French government purchases. There are damped oscillations in German output, as there are in French output. The German economy oscillates between unemployment and fuH employment, as does the French economy. As a result, the process of monetary and fiscal competition leads to price stability and fuH employment.