Fiscal Consolidation: An Exercise in the Methodology of Coordination
AbstractThis paper outlines a new methodology for the study of international policy coordination, which builds on two separate approaches previously used in the literature: optimal simple rules, and game-theoretic analysis. The new approach is illustrated by using the example of a changed target for the debt-income ratio in the G-3. The results suggest that there are few policy externalities when only fiscal policy is coordinated, whilst coordination of both fiscal and monetary policy results in substantial externalities and welfare improvements. Our findings reflect the fact that, unlike earlier studies, we focus on the strategic interaction between (domestic) policy makers, as well as the standard exchange rate and interest rate transmission mechanisms.
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Bibliographic InfoArticle provided by Center for Economic Integration, Sejong University in its journal Journal of Economic Integration.
Volume (Year): 20 (2005)
Issue (Month): ()
Optimal Control; Inflation Targets; Fiscal Consolidation; International Policy Coordination;
Find related papers by JEL classification:
- C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General
- E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
- F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
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