tailieunhanh - FW: Monetary and Fiscal Strategies in the World Economy_3

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 | 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 A2 . 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 gives an overview. Table Monetary Interaction between Europe and America A Common Supply Shock Europe America Unemployment 0 Unemployment 0 Inflation 0 Inflation 0 Shock in A1 3 Shock in A2 3 Shock in B1 3 Shock in B2 3 Unemployment 3 Unemployment 3 Inflation 3 Inflation 3 Change in Money Supply - 4 Change in Money Supply - 2 Unemployment 6 Unemployment 3 Inflation 0 Inflation 3 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