The Effects of American Policies–A New Classical Interpretation
In: International Economic Policy Coordination
The world economy is modelled by linking nine small country models of the 'new classical' type, and adding three blocs of trade equations to cover the smaller economies. The model (like the Liverpool Model of the United Kingdom) assumes rational expectations and market clearing (there are union and non-union sectors in the labour market). These assumptions distinguish it from available multi-country models such as Project Link, which tend to be very large and preserve a traditional Keynesian approach. Policy simulations show that bond-financed United States deficits generate approximately 100 percent 'crowding out' through higher interest rates, while United States monetary policy is very potent (a 1 percent once-for-all rise in the money supply raises world GNP by 0.8 percent in year 1). Recent world experience is argued to be consistent with these results. The large United States deficits have not been 'stimulatory' but have raised world real interest rates substantially. The United States monetary contraction in 1980-81 and expansion in late 1982 have been the major cause of the latest world business cycle. The model also indicates that, even though theoretically possible, international 'fine-tuning' is unnecessary as the model is fairly rapidly self-stabilising. Planned 'locomotive' policies - i.e., rises in budget deficits and money growth - will have their principal effect on inflationary expectations. Predictability of policy is clearly desirable. At the 'micro' country level, it would pay EEC governments to borrow less when United States deficits have pushed world interest rates up; this would ease pressure on the world capital market.
(This abstract was borrowed from another version of this item.)
|This chapter was published in: ||This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number
4133.||Handle:|| RePEc:nbr:nberch:4133||Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
More information through EDIRC
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.:
- Barro, Robert J, 1974.
"Are Government Bonds Net Wealth?,"
Journal of Political Economy,
University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec..
- Barro, Robert J., 1974. "Are Government Bonds Net Wealth?," Scholarly Articles 3451399, Harvard University Department of Economics.
- William H. Branson & Julio J. Rotemberg, 1991. "International Adjustment with Wage Rigidity," NBER Chapters, in: International Volatility and Economic Growth: The First Ten Years of The International Seminar on Macroeconomics, pages 13-44 National Bureau of Economic Research, Inc.
- Branson, William H. & Rotemberg, Julio J., 1980. "International adjustment with wage rigidity," European Economic Review, Elsevier, vol. 13(3), pages 309-332, May.
- William H. Branson & Julio J. Rotemberg, 1981. "International adjustment with wage rigidity," NBER Chapters, in: International Seminar on Macroeconomics, pages 309-332 National Bureau of Economic Research, Inc.
- William H. Branson & Julio J. Rotemberg, 1979. "International Adjustment with Wage Rigidity," NBER Working Papers 0406, National Bureau of Economic Research, Inc.
- Marston, Richard C, 1984. "Real Wages and the Terms of Trade: Alternative Indexation Rules for an Open Economy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 16(3), pages 285-301, August.
- Friedman, Milton, 1972. "Comments on the Critics," Journal of Political Economy, University of Chicago Press, vol. 80(5), pages 906-950, Sept.-Oct.
- Blinder, Alan S. & Solow, Robert M., 1973. "Does fiscal policy matter?," Journal of Public Economics, Elsevier, vol. 2(4), pages 319-337. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:nbr:nberch:4133. 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: ()
If references are entirely missing, you can add them using this form.