Global implications of monetary and fiscal policy rules in the EMU

In order to analyze successful strategies for economic policy in a global environment both international interdependencies and the strategic behavior of "global players" must be considered. We use a global model of the world economy (the MSG2 Model) to show the effects of dynamic policy optimization in the presence of various supply and demand shocks to different world regions. We show that fixed rules are generally superior for supply shocks, while demand shocks call for more active or discretionary policies.