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How to manage financial shocks : Intra-European vs. international monetary coordination

  • Cussy, Pascal
  • Capoen, Fabrice
  • Creel, Jérôme
  • Lenoble-Liaud, Hélène

Using a four-country Mundell–Fleming model including portfolio and wealth effects, we explore the question whether some types of policy coordination could improve the outcomes of a financial shock like the Asian crisis. Time-consistent equilibria are computed : a Nash equilibrium, a target zone regime and a coalition solution. The best equilibrium for all authori- ties except the US government is the European coalition. Introducing a Stability Pact in Europe does not alter this result. Introducing a Fed less conservative than the ECB or the BoJ provokes a change in US preferences : both authorities give priority to the target zone regime.

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Paper provided by Paris Dauphine University in its series Economics Papers from University Paris Dauphine with number 123456789/7133.

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Date of creation: Dec 2003
Date of revision:
Publication status: Published in Journal of Macroeconomics, 2003, Vol. 25, no. 4. pp. 431-455.Length: 24 pages
Handle: RePEc:dau:papers:123456789/7133
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