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Macroeconomic Policies in the OECD and LDC External Adjustment

  • McKibbin, Warwick
  • Sachs, Jeffrey

In this paper, the authors describe a simulation model for analyzing the effects of macroeconomic policies in the OECD on global macroeconomic equilibrium. Particular attention is paid to the effects on developing countries of alternative mixes of monetary and fiscal policies in the OECD. Though the model is quite small, it has several properties which make it attractive for policy analysis. First, the important stock-flow relationships and intertemporal budget constraints are carefully observed, so that the model is useful for short-run and long-run analysis. Budget deficits, for example, cumulate into a stock of public debt which must be serviced while current account deficits cumulate into a stock of foreign debt. Second, the asset markets are forward-looking, so that the exchange rate is conditioned by the entire future path of policies rather than by a set of short-run expectations. Third, the model is amenable to policy optimization exercises, and in particular can be used to study the effects of policy coordination versus non-coordination in the OECD, on global macroeconomic equilibrium.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 56.

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Date of creation: Mar 1985
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Handle: RePEc:cpr:ceprdp:56
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  1. Olivier J. Blanchard, 1984. "Debt, Deficits and Finite Horizons," NBER Working Papers 1389, National Bureau of Economic Research, Inc.
  2. Jeffrey Sachs & Charles Wyplosz, 1984. "Real Exchange Rate Effects of Fiscal Policy," NBER Working Papers 1255, National Bureau of Economic Research, Inc.
  3. Ray C. Fair & John B. Taylor, 1980. "Solution and Maximum Likelihood Estimation of Dynamic Nonlinear RationalExpectations Models," NBER Technical Working Papers 0005, National Bureau of Economic Research, Inc.
  4. David Lipton & James M. Poterba & Jeffrey Sachs & Lawrence H. Summers, 1983. "Multiple Shooting in Rational Expectations Models," NBER Technical Working Papers 0003, National Bureau of Economic Research, Inc.
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