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Macroeconomic Policy Design in an Interdependent World Economy: An Analysis of Three Contingencies

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  • Willem H. Buiter

Abstract

The paper uses a small analytical two-region (the United States and the Rest of the Industrial World) model, to analyze three issues Concerning international economic interdependence and macroeconomic policy coordination that have been raised in connection with the September1985 World Economic Outlook published by the IMF.They are: (1) What should bethe monetary and/or fiscal response in the Rest of the Industrial World to a tightening of U.S. fiscal Policy and what should be the U.S. monetary response? (2) What Should be the monetary and/or fiscal response in the United States and in the Rest of the Industrial World to a"Collapse of the U.S. dollar?" The paper highlights the importance of determining the causes of such a "hard landing" for the U.S.dollar, as the appropriate policy responses are very sensitive to this; (3) What should be the macroeconomic policy response in the Industrial World to a disappointing real growth performance? Again the correct identification of the reason(s) for the disappointmentis shown to be crucial.The final Section discusses and qualifies the activist policy conclusions derived from the formal analysis.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1746.

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Date of creation: Dec 1987
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Publication status: published as Willem H. Buiter. "Macroeconomic Policy Design in an Interdependent World Economy: An Analysis of Three Contingencies ," in Jacob A. Frenkel, ed., "International Aspects of Fiscal Policies" University of Chicago Press (1988)
Handle: RePEc:nbr:nberwo:1746

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  1. Buiter, Willem H, 1984. "Saddlepoint Problems in Continuous Time Rational Expectations Models: A General Method and Some Macroeconomic Examples," Econometrica, Econometric Society, vol. 52(3), pages 665-80, May.
  2. Azariadis, Costas, 1981. "Self-fulfilling prophecies," Journal of Economic Theory, Elsevier, vol. 25(3), pages 380-396, December.
  3. Jeffrey Sachs, 1985. "The Dollar and the Policy Mix: 1985," NBER Working Papers 1636, National Bureau of Economic Research, Inc.
  4. Obstfeld, Maurice & Rogoff, Kenneth, 1983. "Speculative Hyperinflations in Maximizing Models: Can We Rule Them Out?," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 675-87, August.
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Cited by:
  1. Patricia S. Pollard, 1993. "Macroeconomic policy effects in a monetary union," Working Papers 1993-001, Federal Reserve Bank of St. Louis.
  2. Levin, Jay H., 1997. "Stabilization policy, exchange rate expectations, and international transmission," Journal of Policy Modeling, Elsevier, vol. 19(1), pages 19-40, February.

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