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Macroeconomic Policy Design in an Interdependent World Economy: An Analysis of Three Contingencies

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  • Buiter, Willem H.

Abstract

The paper uses a small analytical model of two regions, the United States and the Rest of the Industrial World, to analyze three topical issues concerning international economic interdependence and macroeconomic policy coordination. They are: (1) What should be the monetary and/or fiscal response in the Rest of the Industrial World to a tightening of United States fiscal policy and what should be the United States monetary response? (2) What should be the monetary and/or fiscal response in the United States and in the Rest of the Industrial World to a 'collapse of the United States dollar?' The paper highlights the importance of determining the causes of such a 'hard landing' for the United States dollar, as the appropriate policy responses are very sensitive to this; (3) What should be the macroeconomic policy response in the Industrial World to a disappointing real growth performance? Again the correct identification of the reason(s) for the disappointment is shown to be crucial. The final section discusses and qualifies the activist policy conclusions derived from the formal analysis.

Suggested Citation

  • Buiter, Willem H., 1986. "Macroeconomic Policy Design in an Interdependent World Economy: An Analysis of Three Contingencies," CEPR Discussion Papers 92, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:92
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    Cited by:

    1. Kotilainen, Markku, . "Exchange Rate Unions: A Comparison with Currency Basket and Floating Rate Regimes," ETLA A, The Research Institute of the Finnish Economy, number 21, June.
    2. Zervoyianni, Athina, 1996. "Product-market openness and dynamic responses to exogenous shocks and policies in a two-country, two-goods model," International Review of Economics & Finance, Elsevier, vol. 5(3), pages 269-290.
    3. Levin, Jay H., 1997. "Stabilization policy, exchange rate expectations, and international transmission," Journal of Policy Modeling, Elsevier, vol. 19(1), pages 19-40, February.
    4. Feuerstein, Switgard, 1997. "Fiscal policy in an asymmetric exchange rate union," International Review of Economics & Finance, Elsevier, vol. 6(3), pages 239-258.
    5. Marcus H. Miller & John Williamson, 1991. "The International Monetary System: An Analysis of Alternative Regimes," NBER Chapters, in: International Volatility and Economic Growth: The First Ten Years of The International Seminar on Macroeconomics, pages 279-302, National Bureau of Economic Research, Inc.
    6. Patricia S. Pollard, 1993. "Macroeconomic policy effects in a monetary union," Working Papers 1993-001, Federal Reserve Bank of St. Louis.

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