Policy Coordination in a Monetary Union by Michael Carlberg

By Michael Carlberg

A entire research of the overseas coordination of monetary coverage in a financial union. It conscientiously discusses the method of coverage festival and the constitution of coverage cooperation. As to coverage pageant, the point of interest is on festival among the union crucial financial institution, the German executive, and the French govt. equally, as to coverage cooperation, the point of interest is on cooperation among the union vital financial institution, the German govt, and the French executive. the foremost questions are: Does the method of coverage festival result in complete employment and value balance? Can those pursuits be accomplished via coverage cooperation? And is coverage cooperation more advantageous to coverage pageant? one other very important factor is financial festival / financial cooperation among Europe and America.

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Accordingly, there is a continuous decline in both German exports and French exports. Moreover, after a certain number of steps, German exports are down to zero. And much the same holds for French exports. Budget deficits and current account deficits rise step by step. That is why public debt and foreign debt tend to explode. As a result, fiscal competition between Germany and France does not lead to full employment in Germany and France. Instead, fiscal competition gives rise to a vicious circle.

Alternatively, take an increase in union money supply. Again what will be the effect on German income, and what on French income? In doing the analysis, we make the following assumptions. German goods and French goods are imperfect substitutes for each other. German output is determined by the demand for German goods. French output is determined by the demand for French goods. And union money demand equals union money supply. The monetary union is a small open economy with perfect capital mobility.

That is to say, the output gap in Germany is 60, and the output gap in France is 30. In this situation, the specific target of the union central bank is to dose the output gap in France. The monetary policy multiplier in France is 2. So what is needed is an increase in union money supply of 15. This policy action raises German output and French output by 30 each. As a consequence, German output goes from 940 to 970, and French output goes from 970 to 1000. In France there is now fuH employment.

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