IDEAS home Printed from https://ideas.repec.org/a/eee/inecon/v25y1988i1-2p1-23.html
   My bibliography  Save this article

International policy coordination in interdependent monetary economies

Author

Listed:
  • van der Ploeg, Frederick

Abstract

A classical equilibrium model is analysed of two interdependent monetary economies in which it is assumed that cash is the only asset, and which is characterized by perfect foresight, flexible exchange rates and imperfect substitution between home and foreign goods. The first-best optimum sets the marginal rate of substitution between private and public goods to unity and leads to no tax distortions and the optimal quantity of money. Both non-cooperative and cooperative market-oriented outcomes are time-inconsistent, since each government has an incentive to renege and levy a surprise inflation tax. International policy coordination without precommitment can be counterproductive even though there are no tax distortions and the provision of public goods is optimal, since it exacerbates the credibility problems perceived by the private sectors and therefore leads to excessive inflation and too low a level of real money balances. The reason is that a unilateral surprise inflation tax induces a real depreciation and leads to inflation costs, but a multilateral expansion of monetary growth does not. The typical ranking in order of decreasing welfare is first-best optimum, cooperation with precommitment, competition with precommitment, competition without precommitment and coordination without precommitment.
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • van der Ploeg, Frederick, 1988. "International policy coordination in interdependent monetary economies," Journal of International Economics, Elsevier, vol. 25(1-2), pages 1-23, August.
  • Handle: RePEc:eee:inecon:v:25:y:1988:i:1-2:p:1-23
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/0022-1996(88)90002-5
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:inecon:v:25:y:1988:i:1-2:p:1-23. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: http://www.elsevier.com/locate/inca/505552 .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/505552 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.