Non-neutrality of economic policy: An application of the Tinbergen-Theil’s approach to a strategic context

Issues of policy effectiveness and neutrality are widespread in the economic literature. They have been increasingly raised in specific contexts within the class of LQ (linear-quadratic) policy games in the last 20 years, notably with reference to monetary policy. The more general conditions ensuring nonneutrality in a strategic environment remain however to be inquired. We fill this gap by applying the classical theory of economic policy to a strategic context. This is also useful to highlight some existence conditions for policy game solutions. We restrict ourselves to the common LQ-games in a static perfect information framework, but our simple logic can be extended to other more general situations.LQ-policy games, policy ineffectiveness, controllability.

NON-NEUTRALITY OF MONETARY POLICY IN POLICY GAMES

The main aim of this article is to investigate the sources of non- neutrality in policy games involving one or more trade unions. We use a simple set up in order to clearly expose the basic mechanisms that also work in more complex frameworks. We show that there are common roots in the nonneutrality results so far obtained in apparently different contexts as, e.g., an inflation-averse union playing against the government; a union sharing some other common objective with a policy maker; or when more than one union interacts with monopolistic competitors in the goods market and a policymaker. We finally show that there are other cases where the nonneutrality result can arise.neutrality, money, unions, policy game.

Towards a new theory of economic policy: Continuity and innovation

This paper outlines the evolution of the theory of economic policy from the classical contributions of Frisch, Hansen, Tinbergen and Theil to situations of strategic interaction. Andrew Hughes Hallett has taken an active and relevant part in this evolution, having contributed to both the development and recent rediscovery of the classical theory, with possible relevant applications for model building.policy games, policy effectiveness, controllability, equilibrium existence

Partisanship and fiscal policy co-ordination in a monetary union

The recent economic literature shows a new interest in the links between politics and economics. In this paper, we join Hibbs’ partisanship theory with the literature of fiscal policies international co- ordination. Furthermore, by considering a monetary union context, we also open a new angle of view in the recent debate on the effects of the European Monetary Union. In fact, by considering the possibility of governments’ partisan behaviour, we analyse the possibility for governments of internalising macroeconomic spillovers deriving from public expenditure at a national level and investigate the interactions between fiscal and monetary authorities. This paper also partially answers recent concern for considering multi-player contexts and asymmetries in open economy analyses. Here, in fact, several kinds of co-operation and the effects of asymmetries in players' preferences are studied (e.g. the asymmetries in the governments’ preference due to their partisanship).partisanship, monetary union, international cooperation, policy games

Wage and public expenditure setting in a monetary union

European countries have progressively integrated from the point of view of trade and investment and have a common currency now. However, labour market and fiscal institutions have largely retained their national status. The aim of this paper is to examine: a) the possibility for trade unions of internalising external effects stemming from wage setting in a national context; b) the possibility for governments of internalising macroeconomic spillovers deriving from public expenditure at a national level; c) the interactions between fiscal and monetary authorities. We have found a certain gain in terms of employment only when unions co-operate and we are in a regime where the impact of domestic prices on employment through the terms of trade is higher than the impact of domestic prices on employment through the CPI; in this case, a gain in terms also of inflation may take place. In the case of co-operation between governments gains may accrue only in terms of employment or inflation to one or the other country, if the weights put by the governments on price stability are different. This occurs because the central bank, whose overriding objective is price stability, neutralises any rise in the price levels (as well as the positive effects on employment) deriving from the rise in the government expenditures of both countries that take place as a consequence of governments’ co-operation. This paper partially answers recent concern for considering multi-player contexts and asymmetries in open economy analyses. Here, in fact, several kinds of partial coalitions and the effects of asymmetries in players' preferences are studied.monetary union, policy co-ordination, unions, public expenditure, policy games

Controllability and non-neutrality of economic policy: The Tinbergen’s approach in a strategic context

In the last 20 years issues of policy effectiveness and neutrality (notably with reference to monetary policy) have been increasingly raised in the context of static LQ (linear-quadratic) policy games. The general conditions ensuring policy non-neutrality in a strategic environment remains however to be inquired. We state these conditions by generalizing the classical theory of economic policy developed by Tinbergen and others to such a context. We also state necessary and sufficient conditions for the existence of Nash and Stackelberg equilibria. We finally show that the conditions for monetary policy effectiveness asserted in the literature respect our general conditions.LQ-policy games, policy ineffectiveness, static controllability

www.memotef.uniroma1.it THE THEORETICAL ROOTS OF EMU INSTITUTIONS AND POLICIES DURING THE CRISIS

In this paper we aim at two targets: i) to look for the theoretical roots of the EMU institutions and to check whether the current economic doctrine still supports them; ii) to discuss the appropriateness of these institutions and the policies adopted by European policymakers in order to exit the crisis, specifically with respect to the issues of fiscal policy and public debt. A general issue of inappropriateness of institutions arises both sides of the Atlantic. However, in Europe the problems raised by the specific nature of the crisis of the private debt have been augmented by those of the public debt for reasons again related to the institutional framework. The evolution of economic thought can contribute to explain the differences between the policies that were adopted on the two sides of the Atlantic through its influence on the respective institutions. Time has passed which should have led to a radical change of most of the still current institutional architecture, but a sort of hysteresis is in place. This has a number of possible explanations, such as those underlined by Galbraith (1987). However, in order to explain it one should refer not only to normal and physiological lags, but also the opposing interests, the value judgments and visions prevailing in some European countries and the dominant role of Germany, which conveys them

Tinbergen and Theil Meet Nash: Controllability in Policy Games

This paper generalizes the classical theory of economic policy to a static LQ-strategic context between n players. We show how this generalized version of controllability can profitably be used to deal with policy ineffectiveness issues and Nash equilibrium existence.Policy games, policy ineffectiveness, static controllability, Nash equilibrium existence

Non-neutrality of monetary policy in policy games

The main aim of this article is to investigate the sources of non- neutrality in policy games involving one or more trade unions. We use a simple set up in order to clearly expose the basic mechanisms that also work in more complex frameworks. We show that there are common roots in the non-neutrality results so far obtained in apparently different contexts as, e.g., an inflation-averse union playing against the government; a union sharing some other common objective with a policy maker; or when more than one union interacts with monopolistic competitors in the goods market and a policymaker. We finally show that there are other cases where the non-neutrality result can arise.neutrality, money, unions, policy game