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Monetary Policies in Interdependent Economies with Stochastic Disturbances: A Strategic Approach

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Stephen J. Turnovsky
Vasco d'Orey

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Abstract

This paper analyzes strategic monetary policies using a standard two country stochastic macro model. Three noncooperative equilibria, namely Cournot, Stackelberg, and Consistent Conjectural Variations, are considered.The Pareto Optimal equilibrium, where aggregate joint costs are minimizedis also considered, and all strategic equilibria are compared to the perfectly fixed and flexible exchange rate regimes. The main conclusions obtained are:(i) Demand shocks are much less problematical than supply disturbances from the viewpoint of macro stabilization; (ii) the gains from cooperation are typically small; (iii) the strategic equilibria all show substantial margins of superiority over the fixed and flexible regimes.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1824.

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Date of creation: Feb 1987
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Handle: RePEc:nbr:nberwo:1824

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Nicholas Carlozzi & John B. Taylor, 1986. "International Capital Mobility and the Coordination of Monetary Rules," NBER Working Papers 1242, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. David Currie & Paul Levine, 1985. "Macroeconomic Policy Design In An Interdependent World," NBER Chapters, in: International Economic Policy Coordination, pages 228-273 National Bureau of Economic Research, Inc. [Downloadable!]
  3. Canzoneri, Matthew B & Gray, Jo Anna, 1985. "Monetary Policy Games and the Consequences of Non-cooperative Behavior," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 26(3), pages 547-64, October. [Downloadable!] (restricted)
  4. Willem H. Buiter & Richard C. Marston, 1985. "International Economic Policy Coordination," NBER Books, National Bureau of Economic Research, Inc, number buit85-1, June.
  5. Gilles Oudiz & Jeffrey Sachs, 1984. "Macroeconomic Policy Coordination among the Industrial Economies," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 15(1984-1), pages 1-76. [Downloadable!]
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  1. Dale Henderson & Ning Zhu, 1990. "Uncertainty and the choice of instruments in a two-country monetary-policy game," Open Economies Review, Springer, vol. 1(1), pages 39-65, February. [Downloadable!] (restricted)
  2. Stephen J. Turnovsky & Vasco d'Orey, 1989. "The Choice of Monetary Instrument in Two Interdependent Economies Under Uncertainty," NBER Working Papers 2604, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. Stephen J. Turnovsky, 1989. "The Gains from Fiscal Cooperation in the Two Commodity Real Trade Model," NBER Working Papers 2466, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. Dale W. Henderson & Ning S. Zhu, 1995. "Uncertainty, instrument choice, and the uniqueness of Nash equilibrium: microeconomic and macroeconomic examples," International Finance Discussion Papers 526, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  5. Joseph Daniels & David VanHoose, 1998. "Two-Country Models of Monetary and Fiscal Policy: What Have We Learned? What More Can We Learn?," Open Economies Review, Springer, vol. 9(3), pages 265-284, July. [Downloadable!] (restricted)
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