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Obstacles to International Macroeconomic Policy Coordination

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Jeffrey A. Frankel

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Abstract

Coordination of macroeconomic policies among countries is not as straightforward in practice as it appears in theory. This paper discusses three obstacles to successful international coordination: (1) uncertainty as to the correct initial position of the economy, (2) uncertainty as to the correct objective, and (3) uncertainty as to the correct model linking policy actions to their effects in the economy. Previous results (NBER Working Paper No. 2059) showed that coordination under conditions of policy-maker disagreement about the correct model could very well reduce national welfare rather than raise it. This paper extends those results to allow for explicit policy-maker recognition of uncertainty regarding the correct model, as well as uncertainty regarding the model to which other policy-makers subscribe. It also shows that the potential gains from coordination, even when positive, are usually small relative to the gains from unilateral policy changes based on improved knowledge of the model.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2505.

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Date of creation: Jul 1989
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Handle: RePEc:nbr:nberwo:2505

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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. Zarnowitz, Victor & Moore, Geoffrey H, 1982. "Sequential Signals of Recession and Recovery," Journal of Business, University of Chicago Press, vol. 55(1), pages 57-85, January. [Downloadable!] (restricted)
  2. Melitz, Jacques, 1985. "The welfare case for the European Monetary System," Journal of International Money and Finance, Elsevier, vol. 4(4), pages 485-506, December. [Downloadable!] (restricted)
  3. N. Gregory Mankiw & Matthew D. Shapiro, 1986. "News or Noise? An Analysis of GNP Revisions," NBER Working Papers 1939, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Cooper, Richard N., 1985. "Economic interdependence and coordination of economic policies," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 2, chapter 23, pages 1195-1234 Elsevier. [Downloadable!] (restricted)
  5. Hughes Hallett, Andrew, 1987. "Macroeconomic Policy Design with Incomplete Information: A New Argument for Coordinating Economic Policies," CEPR Discussion Papers 151, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  6. Warwick J. McKibbin & Jeffrey Sachs, 1986. "Coordination of Monetary and Fiscal Policies in the OECD," NBER Working Papers 1800, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Zarnowitz, Victor, 1982. "On Functions, Quality, and Timeliness of Economic Information," Journal of Business, University of Chicago Press, vol. 55(1), pages 87-119, January. [Downloadable!] (restricted)
  8. Victor Zarnowitz, 1982. "On Functions, Quality, and Timeliness of Economic Information," NBER Working Papers 0608, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  9. Holtham, Gerald & Hughes Hallett, Andrew, 1987. "International Policy Cooperation and Model Uncertainty," CEPR Discussion Papers 190, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  10. Canzoneri, Matthew B & Minford, Patrick, 1988. "When International Policy Coordination Matters: An Empirical Analysi s," Applied Economics, Taylor and Francis Journals, vol. 20(9), pages 1137-54, September.
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  11. 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. Barry Eichengreen & Fabio Ghironi, 1998. "European Monetary Unification and International Monetary Cooperation," International Trade 9804001, EconWPA. [Downloadable!]
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  2. Dirk Engelmann & Jan Hanousek & Evžen Kocenda, 2004. "Instability in Exchange Rates of the World Leading Currencies: Implications of a Spatial Competition Model among Central Banks," William Davidson Institute Working Papers Series 2004-686, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
  3. Barry Eichengreen, 1990. "Relaxing the External Constraint: Europe in the 1930s," NBER Working Papers 3410, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. Dirk Engelmann & Jan Hanousek & Evzen Kocenda, 2004. "Instability in Exchange Rates of the World Leading Currencies: Implications of a Spatial Competition Model among Central Banks (Currencies, Competition, and Clans)," Macroeconomics 0406003, EconWPA. [Downloadable!]
  5. Barry Eichengreen, 2008. "Should there be a coordinated response to the problem of global imbalances? Can there be one?," Working Papers 69, United Nations, Department of Economics and Social Affairs. [Downloadable!]
  6. George Alogoskoufis & Richard Portes, 1991. "International Costs and Benefits from EMU," NBER Working Papers 3384, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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