Applied Mathematical Theory for Monetary-Fiscal Interaction in a Supranational Monetary Union ()
ABSTRACT
I utilize a
differentiable dynamical system á la Lotka-Voletrra and explain monetary and fiscal interaction
in a supranational monetary union. The paper demonstrates an applied
mathematical approach that provides useful insights about the interaction mechanisms
in theoretical economics in general and a monetary union in particular. I find
that a common central bank is necessary but not sufficient to tackle the new
interaction problems in a supranational monetary union, such as the free-riding
behaviour of fiscal policies. Moreover, I show that supranational institutions,
rules or laws are essential to mitigate violations of decentralized fiscal
policies.
Share and Cite:
Herzog, B. (2014) Applied Mathematical Theory for Monetary-Fiscal Interaction in a Supranational Monetary Union.
Journal of Applied Mathematics and Physics,
2, 737-744. doi:
10.4236/jamp.2014.28081.