Read full paper at: http://www.scirp.org/journal/PaperInformation.aspx?PaperID=47408#.VMib9izQrzE Author(s) Bodo Herzog Affiliation(s) ESB Business School, Reutlingen University, Reutlingen, Germany . 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. KEYWORDS Differential Equations , Monetary-Fiscal Interacti...
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