We analyze the setting of monetary and nonmonetary policies in monetary unions. We show that in these unions a time inconsistency problem in monetary policy leads to a novel type of free-rider problem in the setting of nonmonetary policies, such as labor market policy, fiscal policy, and bank regulation. The free-rider problem leads the union’s members to pursue lax nonmonetary policies that in...

The papers in this symposium address the issue of multiple equilibria that can be induced by monetary policy in models with capital accumulation. In particular they examine how the “Taylor Principle,” under which interest rates respond more than proportionately to increases in inflation, can generate multiple equilibria. They also explore the design of policies to avoid the problem of multiple ...

The interaction of monetary and fiscal policies is a crucial issue in a highly integrated economic area as the EU. In this paper we study policy cooperation. In particular, we focus on how coalitions among policy-makers are formed and what are their effects on the stabilization of output and price.

This paper presents a re-formulated version of a canonical sticky-price model that has been extended to account for variations over time in the central bank’s inflation target. We derive a closed-form solution for the model, and analyze its properties under various parameter values. The model is used to explore topics relating to the effects of disinflationary monetary policies and inflation pe...

In this paper, we provide a survey of dynamic game theory with special emphasis on past and possible future applications to problems of international economic policy making, where we concentrate on macroeconomic and stabilization policy problems. First, the paper gives a brief introduction to the theory of dynamic games. Next, we show by example that dynamic game theory can provide insights int...