Abstract
The model of unemployment, inflation, and the structural deficit can be represented by a system of three equations:
The policy makers are the central bank and the government. The targets of policy cooperation are zero inflation, zero unemployment, and a zero structural deficit. The instruments of policy cooperation are money supply and government purchases. There are three targets but only two instruments, so what is needed is a loss function:
L is the loss caused by inflation, unemployment, and the structural deficit. We assume equal weights in the loss function. The specific target of policy cooperation is to minimize the loss, given the inflation function, the unemployment function, and the structural deficit function.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Preview
Unable to display preview. Download preview PDF.
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
Copyright information
© 2010 Springer-Verlag Berlin Heidelberg
About this chapter
Cite this chapter
Carlberg, M. (2010). Monetary and Fiscal Cooperation. In: Monetary and Fiscal Strategies in the World Economy. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-10476-3_8
Download citation
DOI: https://doi.org/10.1007/978-3-642-10476-3_8
Published:
Publisher Name: Springer, Berlin, Heidelberg
Print ISBN: 978-3-642-10475-6
Online ISBN: 978-3-642-10476-3
eBook Packages: Business and EconomicsEconomics and Finance (R0)