intTypePromotion=1

FW: Monetary and Fiscal Strategies in the World Economy_3

Chia sẻ: Thao Thao | Ngày: | Loại File: PDF | Số trang:31

0
53
lượt xem
9
download

FW: Monetary and Fiscal Strategies in the World Economy_3

Mô tả tài liệu
  Download Vui lòng tải xuống để xem tài liệu đầy đủ

Tham khảo tài liệu 'fw: monetary and fiscal strategies in the world economy_3', tài chính - ngân hàng, ngân hàng - tín dụng phục vụ nhu cầu học tập, nghiên cứu và làm việc hiệu quả

Chủ đề:
Lưu

Nội dung Text: FW: Monetary and Fiscal Strategies in the World Economy_3

  1. 88 Monetary Interaction between Europe and America: Case C 2) A common supply shock. In each of the regions, let initial unemployment be zero, and let initial inflation be zero as well. Step one refers to the common supply shock. In terms of the model there is an increase in B1 of 3 units, as there is in A1 . And there is an increase in B2 of 3 units, as there is in A 2 . Step two refers to the outside lag. Inflation in Europe goes from zero to 3 percent, as does inflation in America. Unemployment in Europe goes from zero to 3 percent, as does unemployment in America. Step three refers to the policy response. According to the Nash equilibrium there is a reduction in European money supply of 4 units and a reduction in American money supply of 2 units. Step four refers to the outside lag. Inflation in Europe goes from 3 to zero percent. Inflation in America stays at 3 percent. Unemployment in Europe goes from 3 to 6 percent. And unemployment in America stays at 3 percent. Table 3.16 gives an overview. Table 3.16 Monetary Interaction between Europe and America A Common Supply Shock Europe America Unemployment 0 Unemployment 0 Inflation 0 Inflation 0 3 3 Shock in A1 Shock in A2 3 3 Shock in B1 Shock in B2 Unemployment 3 Unemployment 3 Inflation 3 Inflation 3 −4 −2 Change in Money Supply Change in Money Supply Unemployment 6 Unemployment 3 Inflation 0 Inflation 3
  2. 2. Some Numerical Examples 89 First consider the effects on Europe. As a result, given a common supply shock, monetary interaction produces zero inflation in Europe. However, as a side effect, it raises unemployment there. Second consider the effects on America. As a result, monetary interaction has no effect on inflation and unemployment in America. The initial loss of each central bank is zero. The common supply shock causes a loss to the European central bank of 9 units and a loss to the American central bank of 18 units. Then monetary interaction reduces the loss of the European central bank from 9 to zero units. On the other hand, it keeps the loss of the American central bank at 18 units. 3) A common mixed shock. In each of the regions, let initial unemployment be zero, and let initial inflation be zero as well. Step one refers to the common mixed shock. In terms of the model there is an increase in B1 of 6 units and an increase in B2 of equally 6 units. Step two refers to the outside lag. Inflation in Europe goes from zero to 6 percent, as does inflation in America. Unemployment in Europe stays at zero percent, as does unemployment in America. Step three refers to the policy response. According to the Nash equilibrium there is a reduction in European money supply of 10 units and a reduction in American money supply of 8 units. Step four refers to the outside lag. Inflation in Europe goes from 6 to zero percent. Inflation in America goes from 6 to 3 percent. Unemployment in Europe goes from zero to 6 percent. And unemployment in America goes from zero to 3 percent. For a synopsis see Table 3.17. First consider the effects on Europe. As a result, given a common mixed shock, monetary interaction produces zero inflation in Europe. However, as a side effect, it produces unemployment there. Second consider the effects on America. As a result, monetary interaction lowers inflation in America. On the other hand, it raises unemployment there. The initial loss of each central bank is zero. The common mixed shock causes a loss to the European central bank of 36 units and a loss to the American central bank of equally 36 units. Then monetary interaction reduces the loss of the European central bank from 36 to zero units. Similarly, it reduces the loss of the American central bank from 36 to 18 units.
  3. 90 Monetary Interaction between Europe and America: Case C Table 3.17 Monetary Interaction between Europe and America A Common Mixed Shock Europe America Unemployment 0 Unemployment 0 Inflation 0 Inflation 0 0 0 Shock in A1 Shock in A2 6 6 Shock in B1 Shock in B2 Unemployment 0 Unemployment 0 Inflation 6 Inflation 6 Change in Money Supply − 10 −8 Change in Money Supply Unemployment 6 Unemployment 3 Inflation 0 Inflation 3 4) Another common mixed shock. In each of the regions, let initial unemployment be zero, and let initial inflation be zero as well. Step one refers to the common mixed shock. In terms of the model there is an increase in A1 of 6 units and an increase in A 2 of equally 6 units. Step two refers to the outside lag. Unemployment in Europe goes from zero to 6 percent, as does unemployment in America. Inflation in Europe stays at zero percent, as does inflation in America. Step three refers to the policy response. According to the Nash equilibrium there is an increase in European money supply of 2 units and an increase in American money supply of 4 units. Step four refers to the outside lag. Unemployment in Europe stays at 6 percent. Unemployment in America goes from 6 to 3 percent. Inflation in Europe stays at zero percent. And inflation in America goes from zero to 3 percent. For an overview see Table 3.18. First consider the effects on Europe. As a result, given another common mixed shock, monetary interaction produces zero inflation in Europe. However, as a side effect, it produces unemployment there. Second consider the effects on
  4. 2. Some Numerical Examples 91 America. As a result, monetary interaction lowers unemployment in America. On the other hand, it raises inflation there. The initial loss of each central bank is zero. The common mixed shock causes a loss to the European central bank of zero units and a loss to the American central bank of 36 units. Then monetary interaction keeps the loss of the European central bank at zero units. And what is more, it reduces the loss of the American central bank from 36 to 18 units. Table 3.18 Monetary Interaction between Europe and America Another Common Mixed Shock Europe America Unemployment 0 Unemployment 0 Inflation 0 Inflation 0 6 6 Shock in A1 Shock in A2 0 0 Shock in B1 Shock in B2 Unemployment 6 Unemployment 6 Inflation 0 Inflation 0 Change in Money Supply 2 Change in Money Supply 4 Unemployment 6 Unemployment 3 Inflation 0 Inflation 3 5) Summary. Given a common demand shock, monetary interaction produces zero inflation and zero unemployment in each of the regions. Given a common supply shock, monetary interaction produces zero inflation in Europe. And what is more, monetary interaction has no effect on inflation and unemployment in America. Given a common mixed shock, monetary interaction produces zero inflation in Europe. And what is more, monetary interaction lowers inflation in America. On the other hand, it raises unemployment there.
  5. 92 Chapter 4 Monetary Cooperation between Europe and America: Case A The model of unemployment and inflation can be characterized by a system of four equations: u1 = A1 − M1 + 0.5M 2 (1) u 2 = A 2 − M 2 + 0.5M1 (2) π1 = B1 + M1 − 0.5M 2 (3) π2 = B2 + M 2 − 0.5M1 (4) As to policy targets there are three distinct cases. In case A the targets of monetary cooperation are zero inflation in Europe and America. In case B the targets of monetary cooperation are zero inflation and zero unemployment in each of the regions. In case C the targets of monetary cooperation are zero inflation in Europe, zero inflation in America, and zero unemployment in America. This chapter deals with case A, and the next chapters deal with cases B and C. The policy makers are the European central bank and the American central bank. The targets of monetary cooperation are zero inflation in Europe and America. The instruments of monetary cooperation are European money supply and American money supply. There are two targets and two instruments. We assume that the European central bank and the American central bank agree on a common loss function: 2 2 L = π1 + π2 (5) L is the loss caused by inflation in Europe and America. We assume equal weights in the loss function. The specific target of monetary cooperation is to minimize the loss, given the inflation functions in Europe and America. Taking M. Carlberg, Monetary and Fiscal Strategies in the World Economy, 92 DOI 10.1007/978-3-642-10476-3_12, © Springer-Verlag Berlin Heidelberg 2010
  6. Monetary Cooperation between Europe and America: Case A 93 account of equations (3) and (4), the loss function under monetary cooperation can be written as follows: L = (B1 + M1 − 0.5M 2 )2 + (B2 + M 2 − 0.5M1 )2 (6) Then the first-order conditions for a minimum loss are: 5M1 = 2B2 − 4B1 + 4M 2 (7) 5M 2 = 2B1 − 4B2 + 4M1 (8) Equation (7) shows the first-order condition with respect to European money supply. And equation (8) shows the first-order condition with respect to American money supply. The cooperative equilibrium is determined by the first-order conditions for a minimum loss. The solution to this problem is as follows: 3M1 = − 4B1 − 2B2 (9) 3M 2 = − 4B2 − 2B1 (10) Equations (9) and (10) show the cooperative equilibrium of European money supply and American money supply. As a result there is a unique cooperative equilibrium. An increase in B1 causes a reduction in both European and American money supply. Obviously, the cooperative equilibrium is identical to the corresponding Nash equilibrium. That is to say, monetary cooperation case A is equivalent to monetary interaction case A. For some numerical examples see Chapter 1.
  7. 94 Chapter 5 Monetary Cooperation between Europe and America: Case B The model of unemployment and inflation can be represented by a system of four equations: u1 = A1 − M1 + 0.5M 2 (1) u 2 = A 2 − M 2 + 0.5M1 (2) π1 = B1 + M1 − 0.5M 2 (3) π2 = B2 + M 2 − 0.5M1 (4) The policy makers are the European central bank and the American central bank. The targets of monetary cooperation are zero inflation and zero unemployment in each of the regions. The instruments of monetary cooperation are European money supply and American money supply. There are four targets but only two instruments, so what is needed is a loss function. We assume that the European central bank and the American central bank agree on a common loss function: L = π1 + π2 + u1 + u 2 2 2 2 (5) 2 L is the loss caused by inflation and unemployment in each of the regions. We assume equal weights in the loss function. The specific target of monetary cooperation is to minimize the loss, given the inflation functions and the unemployment functions. Taking account of equations (1), (2), (3) and (4), the loss function under monetary cooperation can be written as follows: L = (B1 + M1 − 0.5M 2 )2 + (B2 + M 2 − 0.5M1 )2 + (A1 − M1 + 0.5M 2 )2 + (A 2 − M 2 + 0.5M1 )2 (6) M. Carlberg, Monetary and Fiscal Strategies in the World Economy, 94 DOI 10.1007/978-3-642-10476-3_13, © Springer-Verlag Berlin Heidelberg 2010
  8. Monetary Cooperation between Europe and America: Case B 95 Then the first-order conditions for a minimum loss are: 5M1 = 2A1 − A 2 − 2B1 + B2 + 4M 2 (7) 5M 2 = 2A 2 − A1 − 2B2 + B1 + 4M1 (8) Equation (7) shows the first-order condition with respect to European money supply. And equation (8) shows the first-order condition with respect to American money supply. The cooperative equilibrium is determined by the first-order conditions for a minimum loss. The solution to this problem is as follows: 3M1 = 2A1 + A 2 − 2B1 − B2 (9) 3M 2 = 2A 2 + A1 − 2B2 − B1 (10) Equations (9) and (10) show the cooperative equilibrium of European money supply and American money supply. As a result there is a unique cooperative equilibrium. An increase in A1 causes an increase in both European and American money supply. Obviously, the cooperative equilibrium is identical to the corresponding Nash equilibrium. That is to say, monetary cooperation case B is equivalent to monetary interaction case B. For some numerical examples see Chapter 2.
  9. 96 Chapter 6 Monetary Cooperation between Europe and America: Case C The model of unemployment and inflation can be characterized by a system of four equations: u1 = A1 − M1 + 0.5M 2 (1) u 2 = A 2 − M 2 + 0.5M1 (2) π1 = B1 + M1 − 0.5M 2 (3) π2 = B2 + M 2 − 0.5M1 (4) The policy makers are the European central bank and the American central bank. The targets of monetary cooperation are zero inflation in Europe, zero inflation in America, and zero unemployment in America. The instruments of monetary cooperation are European money supply and American money supply. There are three targets but only two instruments, so what is needed is a loss function. We assume that the European central bank and the American central bank agree on a common loss function: 2 2 2 L = π1 + 0.5π2 + 0.5u 2 (5) L is the loss caused by inflation in Europe, inflation in America, and unemployment in America. We assume equal weights in the loss function. The specific target of monetary cooperation is to minimize the loss, given the inflation functions and the unemployment function. Taking account of equations (2), (3) and (4), the loss function under monetary cooperation can be written as follows: M. Carlberg, Monetary and Fiscal Strategies in the World Economy, 96 DOI 10.1007/978-3-642-10476-3_14, © Springer-Verlag Berlin Heidelberg 2010
  10. Monetary Cooperation between Europe and America: Case C 97 L = (B1 + M1 − 0.5M 2 ) 2 + 0.5(B2 + M 2 − 0.5M1 )2 + 0.5(A 2 − M 2 + 0.5M1 )2 (6) Then the first-order conditions for a minimum loss are: 5M1 = − A 2 − 4B1 + B2 + 4M 2 (7) 5M 2 = 2A 2 + 2B1 − 2B2 + 4M1 (8) Equation (7) shows the first-order condition with respect to European money supply. And equation (8) shows the first-order condition with respect to American money supply. The cooperative equilibrium is determined by the first-order conditions for a minimum loss. The solution to this problem is as follows: 3M1 = A 2 − 4B1 − B2 (9) 3M 2 = 2A 2 − 2B1 − 2B2 (10) Equations (9) and (10) show the cooperative equilibrium of European money supply and American money supply. As a result there is a unique cooperative equilibrium. Obviously, the cooperative equilibrium is identical to the corresponding Nash equilibrium. That is to say, monetary cooperation case C is equivalent to monetary interaction case C. For some numerical examples see Chapter 3.
  11. Part Four Fiscal Policies in Europe and America Absence of a Deficit Target
  12. 101 Chapter 1 Fiscal Interaction between Europe and America 1. The Model The world economy consists of two monetary regions, say Europe and America. The monetary regions are the same size and have the same behavioural functions. An increase in European government purchases lowers European unemployment. On the other hand, it raises European inflation. Correspondingly, an increase in American government purchases lowers American unemployment. On the other hand, it raises American inflation. An essential point is that fiscal policy in Europe has spillover effects on America and vice versa. An increase in European government purchases lowers American unemployment and raises American inflation. Similarly, an increase in American government purchases lowers European unemployment and raises European inflation. The model of unemployment and inflation can be represented by a system of four equations: u1 = A1 − G1 − 0.5G 2 (1) u 2 = A 2 − G 2 − 0.5G1 (2) π1 = B1 + G1 + 0.5G 2 (3) π2 = B2 + G 2 + 0.5G1 (4) Here u1 denotes the rate of unemployment in Europe, u 2 is the rate of unemployment in America, π1 is the rate of inflation in Europe, π2 is the rate of inflation in America, G1 is European government purchases, G 2 is American government purchases, A1 is some other factors bearing on the rate of unemployment in Europe, A 2 is some other factors bearing on the rate of unemployment in America, B1 is some other factors bearing on the rate of inflation in Europe, and B2 is some other factors bearing on the rate of inflation M. Carlberg, Monetary and Fiscal Strategies in the World Economy, 101 DOI 10.1007/978-3-642-10476-3_15, © Springer-Verlag Berlin Heidelberg 2010
  13. 102 Fiscal Interaction between Europe and America in America. The endogenous variables are the rate of unemployment in Europe, the rate of unemployment in America, the rate of inflation in Europe, and the rate of inflation in America. According to equation (1), European unemployment is a positive function of A1 , a negative function of European government purchases, and a negative function of American government purchases. According to equation (2), American unemployment is a positive function of A 2 , a negative function of American government purchases, and a negative function of European government purchases. According to equation (3), European inflation is a positive function of B1 , a positive function of European government purchases, and a positive function of American government purchases. According to equation (4), American inflation is a positive function of B2 , a positive function of American government purchases, and a positive function of European government purchases. Now consider the direct effects. According to the model, an increase in European government purchases lowers European unemployment. On the other hand, it raises European inflation. Correspondingly, an increase in American government purchases lowers American unemployment. On the other hand, it raises American inflation. Then consider the spillover effects. According to the model, an increase in European government purchases lowers American unemployment and raises American inflation. Similarly, an increase in American government purchases lowers European unemployment and raises European inflation. According to the model, a unit increase in European government purchases lowers European unemployment by 1 percentage point. On the other hand, it raises European inflation by 1 percentage point. And what is more, a unit increase in European government purchases lowers American unemployment by 0.5 percentage points and raises American inflation by 0.5 percentage points. For instance, let European unemployment be 2 percent, and let European inflation be 2 percent as well. Further, let American unemployment be 2 percent, and let American inflation be 2 percent as well. Now consider a unit increase in European government purchases. Then European unemployment goes from 2 to 1 percent. On the other hand, European inflation goes from 2 to 3 percent. And
  14. 1. The Model 103 what is more, American unemployment goes from 2 to 1.5 percent, and American inflation goes from 2 to 2.5 percent. The target of the European government is zero unemployment in Europe. The instrument of the European government is European government purchases. By equation (1), the reaction function of the European government is: 2G1 = 2A1 − G 2 (5) Suppose the American government raises American government purchases. Then, as a response, the European government lowers European government purchases. The target of the American government is zero unemployment in America. The instrument of the American government is American government purchases. By equation (2), the reaction function of the American government is: 2G 2 = 2A 2 − G1 (6) Suppose the European government raises European government purchases. Then, as a response, the American government lowers American government purchases. The Nash equilibrium is determined by the reaction functions of the European government and the American government. The solution to this problem is as follows: 3G1 = 4A1 − 2A 2 (7) 3G 2 = 4A 2 − 2A1 (8) Equations (7) and (8) show the Nash equilibrium of European government purchases and American government purchases. As a result there is a unique Nash equilibrium. According to equations (7) and (8), an increase in A1 causes an increase in European government purchases and a decline in American government purchases. A unit increase in A1 causes an increase in European government purchases of 1.33 units and a decline in American government
  15. 104 Fiscal Interaction between Europe and America purchases of 0.67 units. As a result, given a shock, fiscal interaction produces zero unemployment in Europe and America. 2. Some Numerical Examples For easy reference, the basic model is summarized here: u1 = A1 − G1 − 0.5G 2 (1) u 2 = A 2 − G 2 − 0.5G1 (2) π1 = B1 + G1 + 0.5G 2 (3) π2 = B2 + G 2 + 0.5G1 (4) And the Nash equilibrium can be described by two equations: 3G1 = 4A1 − 2A 2 (5) 3G 2 = 4A 2 − 2A1 (6) It proves useful to study six distinct cases: - a demand shock in Europe - a supply shock in Europe - a mixed shock in Europe - another mixed shock in Europe - a common demand shock - a common supply shock. 1) A demand shock in Europe. In each of the regions, let initial unemployment be zero, and let initial inflation be zero as well. Step one refers to a decline in the demand for European goods. In terms of the model there is an increase in A1 of 3 units and a decline in B1 of equally 3 units. Step two refers
  16. 2. Some Numerical Examples 105 to the outside lag. Unemployment in Europe goes from zero to 3 percent. Unemployment in America stays at zero percent. Inflation in Europe goes from zero to – 3 percent. And inflation in America stays at zero percent. Step three refers to the policy response. According to the Nash equilibrium there is an increase in European government purchases of 4 units and a reduction in American government purchases of 2 units. Step four refers to the outside lag. Unemployment in Europe goes from 3 to zero percent. Unemployment in America stays at zero percent. Inflation in Europe goes from – 3 to zero percent. And inflation in America stays at zero percent. Table 4.1 presents a synopsis. Table 4.1 Fiscal Interaction between Europe and America A Demand Shock in Europe Europe America Unemployment 0 Unemployment 0 Inflation 0 Inflation 0 3 Shock in A1 −3 Shock in B1 Unemployment 3 Unemployment 0 −3 Inflation Inflation 0 Change in Govt Purchases − 2 Change in Govt Purchases 4 Unemployment 0 Unemployment 0 Inflation 0 Inflation 0 As a result, given a demand shock in Europe, fiscal interaction produces zero unemployment and zero inflation in each of the regions. The loss functions of the European government and the American government are respectively:
  17. 106 Fiscal Interaction between Europe and America 2 L1 = u1 (7) u2 L2 = (8) 2 The initial loss of the European government is zero, as is the initial loss of the American government. The demand shock in Europe causes a loss to the European government of 9 units and a loss to the American government of zero units. Then fiscal interaction reduces the loss of the European government from 9 to zero units. And what is more, fiscal interaction keeps the loss of the American government at zero units. 2) A supply shock in Europe. In each of the regions let initial unemployment be zero, and let initial inflation be zero as well. Step one refers to the supply shock in Europe. In terms of the model there is an increase in B1 of 3 units and an increase in A1 of equally 3 units. Step two refers to the outside lag. Inflation in Europe goes from zero to 3 percent. Inflation in America stays at zero percent. Unemployment in Europe goes from zero to 3 percent. And unemployment in America stays at zero percent. Step three refers to the policy response. According to the Nash equilibrium there is an increase in European government purchases of 4 units and a reduction in American government purchases of 2 units. Step four refers to the outside lag. Unemployment in Europe goes from 3 to zero percent. Unemployment in America stays at zero percent. Inflation in Europe goes from 3 to 6 percent. And inflation in America stays at zero percent. Table 4.2 gives an overview. First consider the effects on Europe. As a result, given a supply shock in Europe, fiscal interaction produces zero unemployment in Europe. However, as a side effect, it raises inflation there. Second consider the effects on America. As a result, fiscal interaction produces zero unemployment and zero inflation in America. The initial loss of each government is zero. The supply shock in Europe causes a loss to the European government of 9 units and a loss to the American government of zero units. Then fiscal interaction reduces the loss of the European government from 9 to zero units. And what is more, it keeps the loss of the American government at zero units.
  18. 2. Some Numerical Examples 107 Table 4.2 Fiscal Interaction between Europe and America A Supply Shock in Europe Europe America Unemployment 0 Unemployment 0 Inflation 0 Inflation 0 3 Shock in A1 3 Shock in B1 Unemployment 3 Unemployment 0 Inflation 3 Inflation 0 Change in Govt Purchases − 2 Change in Govt Purchases 4 Unemployment 0 Unemployment 0 Inflation 6 Inflation 0 3) A mixed shock in Europe. In each of the regions, let initial unemployment be zero, and let initial inflation be zero as well. Step one refers to the mixed shock in Europe. In terms of the model there is an increase in A1 of 6 units. Step two refers to the outside lag. Unemployment in Europe goes from zero to 6 percent. Unemployment in America stays at zero percent. Inflation in Europe stays at zero percent, as does inflation in America. Step three refers to the policy response. According to the Nash equilibrium there is an increase in European government purchases of 8 units and a reduction in American government purchases of 4 units. Step four refers to the outside lag. Unemployment in Europe goes from 6 to zero percent. Unemployment in America stays at zero percent. Inflation in Europe goes from zero to 6 percent. And inflation in America stays at zero percent. For a synopsis see Table 4.3. First consider the effects on Europe. As a result, given a mixed shock in Europe, fiscal interaction produces zero unemployment in Europe. However, as a side effect, it produces inflation there. Second consider the effects on America.
  19. 108 Fiscal Interaction between Europe and America As a result, fiscal interaction produces zero unemployment and zero inflation in America. The initial loss of each government is zero. The mixed shock in Europe causes a loss to the European government of 36 units and a loss to the American government of zero units. Then fiscal interaction reduces the loss of the European government from 36 to zero units. And what is more, it keeps the loss of the American government at zero units. Table 4.3 Fiscal Interaction between Europe and America A Mixed Shock in Europe Europe America Unemployment 0 Unemployment 0 Inflation 0 Inflation 0 6 Shock in A1 0 Shock in B1 Unemployment 6 Unemployment 0 Inflation 0 Inflation 0 Change in Govt Purchases − 4 Change in Govt Purchases 8 Unemployment 0 Unemployment 0 Inflation 6 Inflation 0 4) Another mixed shock in Europe. In each of the regions, let initial unemployment be zero, and let initial inflation be zero as well. Step one refers to the mixed shock in Europe. In terms of the model there is an increase in B1 of 6 units. Step two refers to the outside lag. Inflation in Europe goes from zero to 6 percent. Inflation in America stays at zero percent. Unemployment in Europe stays at zero percent, as does unemployment in America. Step three refers to the policy response. According to the Nash equilibrium there is no change in European government purchases, nor is there in American
  20. 2. Some Numerical Examples 109 government purchases. Step four refers to the outside lag. Inflation in Europe stays at 6 percent. Inflation in America stays at zero percent. Unemployment in Europe stays at zero percent, as does unemployment in America. For an overview see Table 4.4. First consider the effects on Europe. As a result, given another mixed shock in Europe, fiscal interaction produces zero unemployment in Europe. However, as a side effect, it produces inflation there. Second consider the effects on America. As a result, fiscal interaction produces zero unemployment and zero inflation in America. The mixed shock in Europe causes no loss to the European government or American government. Table 4.4 Fiscal Interaction between Europe and America Another Mixed Shock in Europe Europe America Unemployment 0 Unemployment 0 Inflation 0 Inflation 0 0 Shock in A1 6 Shock in B1 Unemployment 0 Unemployment 0 Inflation 6 Inflation 0 Change in Govt Purchases 0 Change in Govt Purchases 0 Unemployment 0 Unemployment 0 Inflation 6 Inflation 0 5) A common demand shock. In each of the regions, let initial unemployment be zero, and let initial inflation be zero as well. Step one refers to a decline in the demand for European and American goods. In terms of the model there is an increase in A1 of 3 units, a decline in B1 of 3 units, an increase in A 2 of 3 units,
ADSENSE
ADSENSE

CÓ THỂ BẠN MUỐN DOWNLOAD

 

Đồng bộ tài khoản
2=>2