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

  • Turnovsky, Stephen J
  • d'Orey, Vasco

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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Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 96 (1986)
Issue (Month): 383 (September)
Pages: 696-721

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Handle: RePEc:ecj:econjl:v:96:y:1986:i:383:p:696-721
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  1. 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.
  2. Nicholas Carlozzi & John B. Taylor, 1983. "International Capital Mobility and the Coordination of Monetary Rules," NBER Working Papers 1242, National Bureau of Economic Research, Inc.
  3. Willem H. Buiter & Richard C. Marston, 1985. "International Economic Policy Coordination," NBER Books, National Bureau of Economic Research, Inc, number buit85-1, December.
  4. 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.
  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(1), pages 1-76.
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