We extend the model of Leith and Wren-Lewis (2000) to the case of a two-country monetary union, incorporating adaptive expectations. An asymmetry between the stabilisation properties of the two fiscal policies is introduced: only one country is fiscally-constrained by the dispositions of the...

This book studies the strategic policy interactions in a monetary union. The leading protagonists are the European Central Bank and national governments. The target of the ECB is low inflation in Europe. The targets of a national government are low unemployment and a low structural deficit....