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Dynamic Strategic Monetary Policies and Coordination in Interdependent Economies

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Author Info
Turnovsky, Stephen J
Basar, Tamer
d'Orey, Vasco

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Abstract

This paper develops strategic monetary policies using a standard two-country macro model under flexible exchange rates. The equilibria considered include feedback Nash and feedback Stackelberg, both of which are compared to the Pareto optimal cooperative equilibrium. The optimal policies are obtained as feedback rules in which real money supplies are adjusted to movements in the real exchange rate. The properties of these policies and their welfare implications are analyzed using numerical simulations. The contrast in the present results with those obtained previously for a short-run horizon suggest the importance of both intertemporal and intratemporal tradeoffs in the d etermination of optimal strategic policies. Copyright 1988 by American Economic Association.

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Publisher Info
Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 78 (1988)
Issue (Month): 3 (June)
Pages: 341-61
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Handle: RePEc:aea:aecrev:v:78:y:1988:i:3:p:341-61

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. John B. Taylor, 1985. "International Coordination in the Design of Macroeconomic Policy Rules," NBER Working Papers 1506, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  2. Dornbusch, Rudiger, 1976. "Expectations and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1161-76, December. [Downloadable!] (restricted)
  3. Rogoff, Kenneth, 1985. "Can international monetary policy cooperation be counterproductive?," Journal of International Economics, Elsevier, vol. 18(3-4), pages 199-217, May. [Downloadable!] (restricted)
  4. Turnovsky, Stephen J, 1986. "Monetary and Fiscal Policy under Perfect Foresight: A Symmetric Two-country Analysis," Economica, London School of Economics and Political Science, vol. 53(210), pages 139-57, May. [Downloadable!] (restricted)
    Other versions:
  5. Basar, Tamer & Turnovsky, Stephen J. & D'orey, Vasco, 1986. "Optimal strategic monetary policies in dynamic interdependent economies A summary paper," Journal of Economic Dynamics and Control, Elsevier, vol. 10(1-2), pages 15-19, June. [Downloadable!] (restricted)
  6. Peter J. Stemp & Stephen J. Turnovsky, 1988. "Optimal Monetary Policy in an Open Economy," NBER Working Papers 2018, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Gilles Oudiz & Jeffrey Sachs, 1985. "International Policy Coordination In Dynamic Macroeconomic Models," NBER Chapters, in: International Economic Policy Coordination, pages 274-330 National Bureau of Economic Research, Inc. [Downloadable!]
  8. Hughes Hallett, A J, 1984. "Non-cooperative Strategies for Dynamic Policy Games and the Problem of Time Inconsistency," Oxford Economic Papers, Oxford University Press, vol. 36(3), pages 381-99, November. [Downloadable!] (restricted)
  9. Jones, Michael, 1983. "International Liquidity: A Welfare Analysis," The Quarterly Journal of Economics, MIT Press, vol. 98(1), pages 1-23, February.
  10. Bresnahan, Timothy F, 1981. "Duopoly Models with Consistent Conjectures," American Economic Review, American Economic Association, vol. 71(5), pages 934-45, December. [Downloadable!] (restricted)
  11. Martin K. Perry, 1982. "Oligopoly and Consistent Conjectural Variations," Bell Journal of Economics, The RAND Corporation, vol. 13(1), pages 197-205, Spring. [Downloadable!] (restricted)
  12. Willem H. Buiter & Richard C. Marston, 1985. "International Economic Policy Coordination," NBER Books, National Bureau of Economic Research, Inc, number buit85-1.
  13. Morton I. Kamien & Nancy L. Schwartz, 1983. "Conjectural Variations," Canadian Journal of Economics, Canadian Economics Association, vol. 16(2), pages 191-211, May. [Downloadable!] (restricted)
  14. Hamada, Koichi, 1976. "A Strategic Analysis of Monetary Interdependence," Journal of Political Economy, University of Chicago Press, vol. 84(4), pages 677-700, August. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Engwerda, J.C. & Aarle, B. van & Plasmans, J.E.J., 1998. "Fiscal policy interaction in the EMU," Discussion Paper 113, Tilburg University, Center for Economic Research. [Downloadable!]
  2. Giovanni Di Bartolomeo & Debora Di Gioacchino, 2008. "Fiscal-monetary policy coordination and debt management: a two-stage analysis," Empirica, Springer, vol. 35(4), pages 433-448, September. [Downloadable!] (restricted)
  3. Georgios Karras, 1999. "Monetary Policy And The Exchange Rate: The Role Of Openness," International Economic Journal, Korean International Economic Association, vol. 13(2), pages 75-88, June. [Downloadable!] (restricted)
  4. Kirsanova, Tatiana & Vines, David & Wren-Lewis, Simon, 2006. "Fiscal Policy and Macroeconomic Stability Within a Currency Union," CEPR Discussion Papers 5584, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  5. Giovanni Di Bartolomeo & Debora Di Gioacchino, 2004. "Fiscal-Monetary Policy Coordination And Debt Management: A Two Stage Dynamic Analysis," Working Papers 74, Sapienza University of Rome, Department of Public Economics. [Downloadable!]
    Other versions:
  6. Nicola Acocella & Giovanni Di Bartolomeo, 2005. "Non-neutrality of economic policy: An application of the Tinbergen-Theil’s approach to a strategic context," Macroeconomics 0504035, EconWPA, revised 26 Apr 2005. [Downloadable!]
    Other versions:
  7. Tomasz Michalak & Jacob Engwerda & Joseph Plasmans, 2009. "Strategic Interactions between Fiscal and Monetary Authorities in a Multi-Country New-Keynesian Model of a Monetary Union," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  8. Joseph Daniels & David VanHoose, 1998. "Two-Country Models of Monetary and Fiscal Policy: What Have We Learned? What More Can We Learn?," Open Economies Review, Springer, vol. 9(3), pages 265-284, July. [Downloadable!] (restricted)
  9. van Aarle, Bas & Di Bartolomeo, Giovanni & Engwerda, Jacob & Plasmans, Joseph, 2002. "Staying Together or Breaking Apart: Policy-makers' Endogenous Coalitions Formation in the European Economic and Monetary Union," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  10. Georgios Karras, 2001. "Openness to Trade and the Potency of Monetary Policy: How Strong is the Relationship?," Open Economies Review, Springer, vol. 12(1), pages 61-73, January. [Downloadable!] (restricted)
  11. Bas van Aarle & Giovanni Di Bartolomeo & Jacob Engwerda & Joseph Plasmans, 2002. "Monetary and Fiscal Policy Design in the EMU: An Overview," Open Economies Review, Springer, vol. 13(4), pages 321-340, October. [Downloadable!] (restricted)
  12. Reinhard Neck & Engelbert Dockner, 1995. "Commitment and coordination in a dynamic game model of international economic policy-making," Open Economies Review, Springer, vol. 6(1), pages 5-28, January. [Downloadable!] (restricted)
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