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International Policy Coordination in a Dynamic Macroeconomic Model

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  • Jeffrey Sachs
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    Abstract

    This paper illustrates the role for macroeconomic policy coordination when interdependent economies are pursuing disinflationary policies. Under flexible exchangerates, policy makers have an incentive to reduce inflation by pursuing contractionary policies that yield a currency appreciation. In a Nash, perfect foresight equilibrium,policy authorities in the model pursue contractionary policies to achieve currency appreciation, but these attempts cancel out, with the result that all countries end up pursuing excessively contractionary policies (relative to asymmetric Pareto optimum). The paper presents these resultsin a two-country, infinite-horizon difference game.

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    File URL: http://www.nber.org/papers/w1166.pdf
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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1166.

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    Date of creation: Jul 1983
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    Handle: RePEc:nbr:nberwo:1166

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    1. Willem H. Buiter & Marcus H. Miller, 1980. "Monetary Policy and International Competitiveness," NBER Working Papers 0591, National Bureau of Economic Research, Inc.
    2. Matthew B. Canzoneri & Jo Anna Gray, 1983. "Two essays on monetary policy in an interdependent world," International Finance Discussion Papers 219, Board of Governors of the Federal Reserve System (U.S.).
    3. Bresnahan, Timothy F, 1981. "Duopoly Models with Consistent Conjectures," American Economic Review, American Economic Association, vol. 71(5), pages 934-45, December.
    4. Blanchard, Olivier Jean & Kahn, Charles M, 1980. "The Solution of Linear Difference Models under Rational Expectations," Econometrica, Econometric Society, vol. 48(5), pages 1305-11, July.
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    Cited by:
    1. Coenen, Günter & Lombardo, Giovanni & Smets, Frank & Straub, Roland, 2008. "International transmission and monetary policy cooperation," Working Paper Series 0858, European Central Bank.
    2. Kenneth S. Rogoff, 1983. "Productive and counterproductive cooperative monetary policies," International Finance Discussion Papers 233, Board of Governors of the Federal Reserve System (U.S.).
    3. Benigno, Gianluca & Benigno, Pierpaolo, 2003. "Designing targeting rules for international monetary policy cooperation," Working Paper Series 0279, European Central Bank.
    4. Gerken, Egbert, 1985. "Auf dem Wege zu einer Theorie der internationalen Koordination der Agrarpolitik," Kiel Working Papers 229, Kiel Institute for the World Economy.
    5. Cohen Daniel & Wyplosz Ch., 1990. "Price and trade effects of exchange rates fluctuations and the design of policy coordination," CEPREMAP Working Papers (Couverture Orange) 9010, CEPREMAP.
    6. Gilles Oudiz & Jeffrey Sachs, 1984. "International Policy Coordination in Dynamic Macroeconomic Models," NBER Working Papers 1417, National Bureau of Economic Research, Inc.

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