Economics

The interaction of monetary and fiscal policies is a crucial issue in a highly integrated economic area as the European Union. This paper analyzes the design of monetary and fiscal policies in the EMU. To do so, the paper starts with an overview of the most important aspects. Next, it analyzes monetary and fiscal policy interaction in a stylized model of a monetary union, in which monetary and fiscal policy design is modeled as a dynamic stabilization game. Macroeconomic policymaking and adjustment are studied under alternative forms of cooperation and in both symmetric and asymmetric settings.

No theory of structural exchange rate determination has yet been found that performs well in prediction experiments. Only very seldom has the simple random walk model been significantly outperformed. Referring to three, sometimes highly nonlinear, monetary and nonmonetary structural exchange rate models, a feedforward artificial neural network specification is investigated to determine whether it improves the prediction performance of structural and random walk exchange rate models. A new test for univariate nonlinear cointegration is also derived. Important nonlinearities are not detected for monthly data of US dollar rates in Deutsche marks, Dutch guilders, British pounds and Japanese yens.

This article examines the role of the interaction between product market and labor market imperfections in determining total factor productivity growth (TFPG). Embedding Dobbelaere and Mairesse's (2009) generalization of approach, allowing for the possibility that wages are determined according to an efficient bargaining process between employers and employees, we correct estimated TFPG for possible biases arising from labor market imperfections. Our analysis contributes to the literature in a number of ways. First, we propose a new empirical measure of TFPG which takes into account possible biases coming from imperfect competition on both labor and output markets, whereas Dobbelaere and Mairesse (2009) focus on the decomposition of the Solow residual. Second, in contrast to most of the literature following Hall's approach, we estimate market power including the user cost of capital stock. Third, we measure the sensitivity of TFPG to an alternative specification of competition based on relative profits. Using a large Dutch firm-level panel database over the period 1989-2005, we find that workers' unions power, and in general rigidities of the labor market, affect firms' marginal cost, and, consequently, the markups. Moreover, taking into account variable returns to scale and imperfect competition in the output market translate into increased TFPG, while accounting for labor market bargaining power leads to lower TFPG. Next, the investigation of our empirical relationship between the price-cost margin and an alternative specification of imperfect competition of the output market (profit elasticity) as a sensitivity analysis of the TFPG shows that adding more structure to the competition measure does not affect the level of productivity change.

We present an algorithm and a corresponding MATLAB numerical toolbox to solve any form of infinite-planning horizon affine linear quadratic open-loop differential games. By rewriting a specific application into the standard framework one can use the toolbox to calculate and verify the existence of both the open-loop noncooperative Nash equilibrium (equilibria) and cooperative Pareto equilibrium (equilibria). In case there is more than one equilibrium for the non-cooperative case, the toolbox determines all solutions that can be implemented as a feedback strategy. Alternatively, the toolbox can apply a number of choice methods in order to discriminate between multiple equilibria. The user can predefine a set of coalition structures for which they would like to calculate the non-cooperative Nash solution(s). It is also possible to specify the relative importance of each player in any coalition structure. Furthermore, the toolbox offers plotting facilities as well as other options to analyse the outcome of the game. For instance, it is possible to disaggregate each player's total loss into its contributing elements. The toolbox is available as a freeware from the authors of this paper.

In this paper, we analyze coordination of macroeconomic stabilization policies within the EMU by focusing, in a dynamic set-up, on asymmetries, externalities, and the existence of a multi-country context. We study how coalitions among fiscal and monetary authorities are formed and what are their effects on the stabilization of output and price. In particular, our attention is directed to study the consequences on these issues of different institutional contexts in which policy-makers may act. Among other results, we found that, in the presence of externalities, the occurrence of asymmetries is a necessary but not a sufficient condition for cooperation.

This paper studies the effects of a monetary union enlargement using the techniques and outcomes from an extensive research project on macroeconomic policy coordination in the EMU. Our approach is characterized by two main pillars: (i) linear-quadratic differential games to capture externalities, spillovers and strategic behaviour of (fiscal and monetary) players; and (ii) endogenous coalition formation concepts which enable us to study a creation and stability of different cooperation arrangements. In this paper we focus on the first pillar and construct a multi-player linear-quadratic continuous-time model of 5 countries and 4 central banks to evaluate effects of accession of a new member to an existing MU. Our findings stress the importance of an asymmetric shock confirming basic results of the OCA theory. It comes out that in our setting it is never profitable to enlarge the monetary union when there is a risk of an asymmetric shock. What is more, the potential losses from accession are so high that it can be barely possible to design a transfer system to compensate for a worse situation of some countries.

In this paper we analyze the interaction of fiscal stabilization policies in the Economic and Monetary Union (EMU). The "Excessive Deficits" Procedure of the Maastricht Treaty and its elaborations in the recent "Stability and Growth Pact" introduce a set of fiscal stringency requirements on national fiscal policies. Situations might arise where the need for fiscal flexibility and the fiscal stringency requirements will create a conflict and suboptimal macroeconomic policies are implemented. We analyze macroeconomic adjustment under non-cooperative and cooperative fiscal policy design in the EMU using a dynamic games approach. In particular we consider how fiscal stringency requirements like the Stability and Growth Pact affect fiscal policy design under EMU and study the consequences of the introduction of a fiscal transfer mechanism between countries. JEL classification: C7; E6; F4

This paper conducts a comprehensive study of both intra-office and cross-office patent citations indicated in patents granted to Belgian corporate applicants by the United States and European patent offices during the period between 1996 and 2000. It employs a qualitative response variable analysis (with possibly asymmetric probability distribution) to patent citations in different industries.

The European Union (EU) countries have started the Economic and Monetary Union (EMU) on January 1, 1999. With the EMU, the EU countries replaced their national currencies and national monetary policy autonomy by a common currency, the Euro, and a common monetary policy that is designed and implemented by the European Central Bank (ECB). A common currency was considered to form the completion of the Single Market Program: in fully liberalized internal goods, labor and capital markets, a common currency is a natural counterpart and expected to deliver substantial efficiency gains. The distinguishing feature of the EMU is that of a full monetary union without being accompanied by a political and fiscal union.

This paper presents a dynamic model of a competitive R&D and production duopoly subject to knowledge spillovers. Two asymmetric firms operate for a limited period of time and dispose their knowledge capital in the end. Both firms and the social planner prefer the R&Dcooperative strategy over the competitive one regardless of the intensity of knowledge spillovers. Accumulation of knowledge capital results allows the monopolist to have lower marginal cost of production and charge a lower market price than a fully competitive duopoly. Being able to define the degree of knowledge exchange when creating a research joint venture, the firms do not necessary choose the highest degree of cooperation available.

This paper studies R&D investment decisions of a firm facing the threat of new technology entry and subject to technical uncertainty. We distinguish four scenarios: inevitable entry, entry deterrence, entry blockade, and non-credible entry threat. The entry threat stimulates the incumbent to innovate in case entry prevention is possible, but discourages R&D if entry is inevitable. In the case of entry deterrence the incumbent successfully prevents entry by innovating. Greater technical uncertainty stimulates starting R&D and can result in implementation of more expensive research projects. The welfare analysis shows that the relation between welfare and entry cost and between welfare and uncertainty is nonmonotonic.

The interaction of monetary and fiscal policies is a crucial issue in a highly integrated economic area as the European Union. We investigate to which extent the EMU, that introduced a common monetary policy and restrictions on fiscal policy at the national level, benefits from macroeconomic policy cooperation due to the various interactions, spillovers and externalities from national macroeconomic policies. To study the effects of policy cooperation we compare the impact of three alternative policy regimes in a stylized dynamic model of the EMU: (i) non-cooperative monetary and fiscal policies, (ii) partial cooperation, and (iii) full cooperation both in symmetric and asymmetric settings where countries differ in structural characteristics, policy preferences and/or bargaining power. The paper introduces an analysis of coalitional behaviour in a dynamic setting into the literature.

We present a model where firms make competitive decisions about the optimal duration (or time to build) of their R&D projects. Choosing its project's duration, the firm can choose to become a leader or a follower, based on its R&D efficiency, the size of the R&D to be carried out and the degree of innovation, which this research will produce. It is shown that asymmetry in R&D efficiency between firms is an important factor determining feasibility of the preemption and attrition scenarios in competitive R&D with time to build. Scenarios of attrition and preemption games are most likely to occur when competitors have similar R&D efficiencies. In case of largely asymmetric firms the games of attrition and preemption are very unlikely, thus the R&D duration choices of firms are determined by the actual trade-off between the benefits of earlier innovation and the costs of faster R&D project completion.

This paper conducts a comprehensive study of patent citations in patents granted to Belgian corporate applicants by the United States and the European Patent Offices using qualitative response variable analysis. The analysis uncovered different patterns of citations in patents, which belong to different industrial classes. The studied citation data provides evidence of inter-or intra-firm and inter-or intra-industry knowledge spillovers, which are quite industry specific. In the framework of R&D cooperation stimulating policies, our results advocate for considering those differences in order to balance the effect of knowledge spillovers driven market incentives and direct regulation.