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When International Policy Coordination Matters: An Empirical Analysis

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  • Canzoneri, Matthew B
  • Minford, Patrick

Abstract

The interdependence of national economies implies externalities in policy making, and these externalities lead to inefficient outcomes when policy-making is decentralised and independent. These externalities have been well documented from a theoretical point of view. This paper reports our attempts to discover if and when policy coordination matters. We use the Liverpool World Model, which exhibits strong spillover effects for monetary policy and would therefore, we thought, yield very different results from those of earlier researchers. However, strong spillover effects do not guarantee that cooperative and non cooperative policies will yield very different outcomes: other aspects of the policy game's structure can be equally important. Indeed, we found many plausible situations in which the non-cooperative and cooperative solutions are effectively indistinguishable, given realistic assumptions concerning the precision with which central banks seem to be able to control their money supplies. We also discovered situations in which coordination does make a significant difference, however.

Suggested Citation

  • Canzoneri, Matthew B & Minford, Patrick, 1986. "When International Policy Coordination Matters: An Empirical Analysis," CEPR Discussion Papers 119, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:119
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    Citations

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    Cited by:

    1. Nolan, Charles, 2002. "Monetary Stabilisation Policy in a Monetary Union: Some Simple Analytics," Scottish Journal of Political Economy, Scottish Economic Society, vol. 49(2), pages 196-215, May.
    2. Jeffrey A. Frankel., 1987. "Obstacles to International Macroeconomic Policy Coordination," Economics Working Papers 8737, University of California at Berkeley.
    3. Matti Viren, 2011. "Fiscal policy coordination in the EMU: A problem with asymmetry and aggregation," Discussion Papers 70, Aboa Centre for Economics.
    4. Canzoneri, Matthew B. & Cumby, Robert E. & Diba, Behzad T., 2005. "The need for international policy coordination: what's old, what's new, what's yet to come?," Journal of International Economics, Elsevier, vol. 66(2), pages 363-384, July.
    5. Leonor Coutinho, 2008. "Fiscal Policy and Macroeconomic Stabilizations: What are the Gains from Cooperation?," Open Economies Review, Springer, vol. 19(1), pages 81-120, February.
    6. Leonor Coutinho, 2003. "Fiscal Policy in the New Open Economy. Macroeconomics and Prospects for Fiscal Policy Coordination," Economics Working Papers 021, European Network of Economic Policy Research Institutes.
    7. Virén, Matti, 1999. "Fiscal Policy, Automatic Stabilisers and Policy Coordination in EMU," Discussion Papers 204, VATT Institute for Economic Research.
    8. VirÉn, Matti, 2000. "Fiscal Policy, Automatic Stabilisers and Policy Coordination in EMU," Discussion Papers 744, The Research Institute of the Finnish Economy.
    9. Peter Mooslechner & Martin Schuerz, 1999. "International Macroeconomic Policy Coordination: Any Lessons for EMU? A Selective Survey of the Literature," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 26(3), pages 171-199, September.
    10. Nyahoho, Emmanuel, 1995. "La concurrence de monnaies dans un marché financier dématérialisé," L'Actualité Economique, Société Canadienne de Science Economique, vol. 71(3), pages 334-364, septembre.
    11. Kox, Henk L. M. & Van der Tak, Casper M., 1996. "Non-transboundary pollution and the efficiency of international environmental co-operation," Ecological Economics, Elsevier, vol. 19(3), pages 247-259, December.

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