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Macroeconomic Policies in the OECD and LDC External Adjustmemt

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  • Jeffrey Sachs
  • Warwick J. McKibbin

Abstract

In this paper, the authors describe a simulation model for analyzing the effects of macroeconomic policies in the OECD on global macroeconomic equilibrium. Particular attention is paid to the effects on developing countries of alternative mixes of monetary and fiscal policies in the OECD.Though the model is quite small, it has several properties which make it attractive for policy analysis. First, the important stock-flow relationships and intertemporal budget constraints are carefully observed, so that the modelis useful for short-run and long-run analysis. Budget deficits, for example,cumulate into a stock of public debt which must be serviced, while current account deficits cumulate into a stock of foreign debt. Second, the asset markets are forward looking, so that the exchange rate is conditioned by the entire future path of policies rather than by a set of short-run expectations. Third, the model is amenable to policy optimization exercises, and in particular can be used to study the effects of policy coordination versus non-coordination in the OECD, on global macroeconomic equilibrium.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1534.

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Date of creation: Jan 1985
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Handle: RePEc:nbr:nberwo:1534

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References

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  1. Ray C. Fair & John B. Taylor, 1980. "Solution and Maximum Likelihood Estimation of Dynamic Nonlinear RationalExpectations Models," NBER Technical Working Papers 0005, National Bureau of Economic Research, Inc.
  2. Olivier J. Blanchard, 1984. "Debt, Deficits and Finite Horizons," NBER Working Papers 1389, National Bureau of Economic Research, Inc.
  3. Jeffrey Sachs & Charles Wyplosz, 1984. "Real Exchange Rate Effects of Fiscal Policy," NBER Working Papers 1255, National Bureau of Economic Research, Inc.
  4. David Lipton & James M. Poterba & Jeffrey Sachs & Lawrence H. Summers, 1983. "Multiple Shooting in Rational Expectations Models," NBER Technical Working Papers 0003, National Bureau of Economic Research, Inc.
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Cited by:
  1. Naoko Ishii & Warwick J. McKibbin & Jeffrey Sachs, 1985. "Macroeconomic Interdependence of Japan and the United States: Some Simulation Results," NBER Working Papers 1637, National Bureau of Economic Research, Inc.
  2. Guglielmo Caporale & Michael Chui & Stephen Hall & Brian Henry, 2003. "Evaluating the Gains to Cooperation in the G-3," Empirica, Springer, vol. 30(4), pages 337-356, December.
  3. Warwick J. McKibbin & Jeffrey D. Sachs, 1989. "The McKibbin-Sachs Global Model: Theory and Specifications," NBER Working Papers 3100, National Bureau of Economic Research, Inc.
  4. Laurence H. Meyer & Brian M. Doyle & Joseph E. Gagnon & Dale W. Henderson, 2002. "International coordination of macroeconomic policies: still alive in the new millennium?," International Finance Discussion Papers 723, Board of Governors of the Federal Reserve System (U.S.).
  5. Roubini, Nouriel, 1991. "Leadership and cooperation in the Europian Monetary System: A simulation approach," Journal of Policy Modeling, Elsevier, vol. 13(1), pages 1-39.
  6. 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.
  7. Warwick J. McKibbin & Jeffrey D. Sachs, 1986. "Comparing the Performance of Alternative Exchange Arrangements," NBER Working Papers 2024, National Bureau of Economic Research, Inc.

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