Plenary Lecture
Dynamic Game Models of Macroeconomic Policies for a Monetary Union
Professor Reinhard Neck
co-author: Professor Dmitri Blueschke
Alpen-Adria-Universität Klagenfurt
Austria
E-mail: Reinhard.neck@aau.at
Abstract: In this paper we give a brief introduction to dynamic games and their applications to economic problems, especially those of macroeconomic policy. Then we present an application of the dynamic tracking games framework to modelling a monetary union. We use a small stylized nonlinear two-country macroeconomic model (MUMOD1) of a monetary union to analyse the interactions between fiscal (governments) and monetary (common central bank) policy makers, assuming different objective functions of these decision makers. Using the OPTGAME algorithm for the numerical approximate solution of these games, we study the impacts of an exogenous fall in aggregate demand and the resulting increase in public debt, similar to the economic crisis (2007-2010) and the sovereign debt crisis (since 2010) in Europe. In the union, the governments of participating countries pursue national goals when deciding on fiscal policies whereas the common central bank’s monetary policy aims at union-wide objective variables. The union considered is asymmetric, consisting of a “core” with lower initial public debt, and a “periphery” with higher initial public debt. Moreover, we analyse several possible solutions to deal with these crises. Main results include the demonstration that debt relief for the periphery can be disadvantageous to both “core” and “periphery”; cooperation in a fiscal union may be Pareto superior to a non-cooperative equilibrium but may in some cases also yield higher overall losses if one bloc dominates the fiscal union; and introducing more symmetry into the union can provide a viable solution of the sovereign debt crisis. Tentative policy conclusions for fiscal and monetary policies in the Euro Area are drawn.
Brief Biography of the Speaker: Reinhard Neck, Professor of Economics, Alpen-Adria-University Klagenfurt, Klagenfurt, Austria; Research Fellow, CESifo, Munich, Germany; Visiting Professor, University of Ljubljana, Slovenia.
Previous Positions: Research Assistant, University of Fribourg, Switzerland, 1974-77; Research Assistant and Lecturer, Vienna University of Economics and Business Administration, Vienna, Austria, 1977-92; Joseph Schumpeter Research Fellow, Harvard University, 1991-92; Professor of Economics/Quantitative Economic Policy, University of Bielefeld, Germany, 1992-95; Professor of Economics/Public Economics, University of Osnabruck, Germany, 1995-97; Austrian Visiting Professor, Stanford University, 2001; Research Fellow, University of California at Berkeley, 2006.
Publications: (co-)author or editor of more than 40 books and special issues of international journals; more than 300 articles in journals and collective volumes (including European Journal of Operational Research, Journal of Economic Dynamics and Control, European Journal of Political Economy, Annals of Operations Research, Open Economies Review, Public Choice, European Economic Review, Annual Reviews in Control, Atlantic Economic Journal, Computational Economics, Journal of Economic Asymmetries, Empirica, Computational Statistics and Data Analysis, International Tax and Public Finance, Central European Journal of Operations Research; Dynamics of Continuous, Discrete and Impulsive Systems; Nonlinear Analysis, Methods of Operations Research, Optimal Control Applications and Methods, Journal of Economics).