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When International Policy Coordination Matters: An Empirical Analysis

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  • Canzoneri, Matthew B
  • Minford, Patrick

Abstract

The interdependence of national economies implies externalities in policy making, and these externalities lead to inefficient outcomes when policy-making is decentralised and independent. These externalities have been well documented from a theoretical point of view. This paper reports our attempts to discover if and when policy coordination matters. We use the Liverpool World Model, which exhibits strong spillover effects for monetary policy and would therefore, we thought, yield very different results from those of earlier researchers. However, strong spillover effects do not guarantee that cooperative and non cooperative policies will yield very different outcomes: other aspects of the policy game's structure can be equally important. Indeed, we found many plausible situations in which the non-cooperative and cooperative solutions are effectively indistinguishable, given realistic assumptions concerning the precision with which central banks seem to be able to control their money supplies. We also discovered situations in which coordination does make a significant difference, however.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 119.

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Date of creation: Jul 1986
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Handle: RePEc:cpr:ceprdp:119

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Keywords: Liverpool Model; Monetary Policy; Policy Coordination; Spillovers;

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Cited by:
  1. Matti Viren, 2011. "Fiscal policy coordination in the EMU: A problem with asymmetry and aggregation," Discussion Papers 70, Aboa Centre for Economics.
  2. Frankel, Jeffrey, 1987. "Obstacles to International Macroeconomic Policy Coordination," Department of Economics, Working Paper Series qt2vv7z9cr, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  3. Scheide, Joachim & Sinn, Stefan, 1987. "How strong is the case for international coordination?," Kiel Working Papers 306, Kiel Institute for the World Economy.
  4. Leonor Coutinho, 2003. "Fiscal Policy in the New Open Economy. Macroeconomics and Prospects for Fiscal Policy Coordination," Economics Working Papers 021, European Network of Economic Policy Research Institutes.
  5. Peter Mooslechner & Martin Schuerz, 1999. "International Macroeconomic Policy Coordination: Any Lessons for EMU? A Selective Survey of the Literature," Empirica, Springer, vol. 26(3), pages 171-199, September.
  6. Canzoneri, Matthew B. & Cumby, Robert E. & Diba, Behzad T., 2005. "The need for international policy coordination: what's old, what's new, what's yet to come?," Journal of International Economics, Elsevier, vol. 66(2), pages 363-384, July.
  7. Nyahoho, Emmanuel, 1995. "La concurrence de monnaies dans un marché financier dématérialisé," L'Actualité Economique, Société Canadienne de Science Economique, vol. 71(3), pages 334-364, septembre.
  8. Matti Virén, 1999. "Fiscal Policy, Automatic Stabilisers and Policy Coordination in EMU," Discussion Papers 204, Government Institute for Economic Research Finland (VATT).
  9. Andrew Brigden & Charles Nolan, 1999. "Monetary stabilisation policy in a monetary union: some simple analytics," Bank of England working papers 102, Bank of England.
  10. Kox, Henk L. M. & Van der Tak, Casper M., 1996. "Non-transboundary pollution and the efficiency of international environmental co-operation," Ecological Economics, Elsevier, vol. 19(3), pages 247-259, December.
  11. VirÉn, Matti, 2000. "Fiscal Policy, Automatic Stabilisers and Policy Coordination in EMU," Discussion Papers 744, The Research Institute of the Finnish Economy.
  12. Leonor Coutinho, 2008. "Fiscal Policy and Macroeconomic Stabilizations: What are the Gains from Cooperation?," Open Economies Review, Springer, vol. 19(1), pages 81-120, February.

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