How to manage speculative shocks: intra-European vs. International monetary coordination
The literature on currency crisis has generally not answered to the following question: which economic policies may reduce the contagion effects of a speculative shock? We use a dynamic Mundell-Fleming model extended to four countries and compute three time-consistent equilibria: a Nash equilibrium, and Nash-bargaining equilibria, first between the central banks of the G3 (a target zone equilibrium) and, second between European governments and the ECB. The best equilibrium for the Fed, European and Japanese policymakers is intra-European coordination. It induces a very expansionary fiscal policy in the USA whose government hence rejects it. Extensions to the case of a Stability Pact in European countries do not alter our results. Introducing a Fed less conservative than the ECB or the BoJ provokes a change in US preferences: both authorities give priority to the monetary equilibrium and the US government is no longer isolationist.
|Date of creation:||2000|
|Date of revision:|
|Publication status:||forthcoming in Journal of Macroeoconomics, vol.25, no.4, December 2003.|
|Contact details of provider:|| Postal: 69, quai d'Orsay - 75007 PARIS|
Phone: 01 44 18 54 00
Fax: 01 45 56 06 15
Web page: http://www.ofce.sciences-po.fr/
More information through EDIRC
References listed on IDEAS
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.:
- John Williamson, 1999.
"Crawling Bands or Monitoring Bands: How to Manage Exchange Rates in a World of Capital Mobility,"
PB99-03, Peterson Institute for International Economics.
- Williamson, John, 1998. "Crawling Bands or Monitoring Bands: How to Manage Exchange Rates in a World of Capital Mobility," International Finance, Wiley Blackwell, vol. 1(1), pages 59-79, October.
- Barry Eichengreen & Charles Wyplosz, 1998. "The Stability Pact: more than a minor nuisance?," Economic Policy, CEPR;CES;MSH, vol. 13(26), pages 65-113, 04.
- Soderlind, Paul, 1999.
"Solution and estimation of RE macromodels with optimal policy,"
European Economic Review,
Elsevier, vol. 43(4-6), pages 813-823, April.
- Söderlind, Paul, 1998. "Solution and Estimation of RE Macromodels with Optimal Policy," SSE/EFI Working Paper Series in Economics and Finance 256, Stockholm School of Economics.
- Fabrice Capoën & Pierre Villa, 1997. "Internal and External Policy Coordination: a Dynamic Analysis," Working Papers 1997-15, CEPII research center.
- Buiter,Willem H. & Marston,Richard C., 1986.
"International Economic Policy Coordination,"
Cambridge University Press, number 9780521337809, September.
- Giancarlo Corsetti & Paolo Pesenti & Nouriel Roubini, 1998.
"Paper Tigers? A Model of the Asian Crisis,"
NBER Working Papers
6783, National Bureau of Economic Research, Inc.
- Corsetti, G. & Pesenti, P. & Roubini, N., 1998.
"What Caused the Asian Currency and Financial Crisis?,"
343, Banca Italia - Servizio di Studi.
- Corsetti, Giancarlo & Pesenti, Paolo & Roubini, Nouriel, 1999. "What caused the Asian currency and financial crisis?," Japan and the World Economy, Elsevier, vol. 11(3), pages 305-373, October.
- Giancarlo Corsetti & Paolo Pesenti & Nouriel Roubini, 1998. "What Caused the Asian Currency and Financial Crisis?," Temi di discussione (Economic working papers) 343, Bank of Italy, Economic Research and International Relations Area.
- Hughes Hallett, A J, 1993. "Exchange Rates and Asymmetric Policy Regimes: When Does Exchange Rate Targeting Pay?," Oxford Economic Papers, Oxford University Press, vol. 45(2), pages 191-206, April.
- A.J. Hallet, 1998. "When Do Target Zones Work? An Examination of Exchange Rate Targeting as a Device for Coordinating Economic Policies," Open Economies Review, Springer, vol. 9(2), pages 115-138, April.
- Henri Sterdyniak & Éric Bleuze, 1988.
"L'interdépendance des économies en change flexible : les apports d'une maquette dynamique,"
Programme National Persée, vol. 39(5), pages 999-1034.
- Henri Sterdyniak & Eric Bleuze, 1988. "L'interdépendance des économies en change flexible : les apports d'une maquette dynamique," Sciences Po publications info:hdl:2441/5386, Sciences Po.
- Agnès Bénassy & Henri Sterdyniak, 1992. "La détermination des taux de change dans les modèles multinationaux : l'état de l'art," Économie et Prévision, Programme National Persée, vol. 104(3), pages 39-71.
- Stiglitz, Joseph E, 1999. "Responding to Economic Crises: Policy Alternatives for Equitable Recovery and Development," Manchester School, University of Manchester, vol. 67(5), pages 409-27, Special I.
- Gilles Oudiz & Jeffrey Sachs, 1985. "International Policy Coordination in Dynamic Macroeconomic Models," NBER Chapters, in: International Economic Policy Coordination, pages 274-330 National Bureau of Economic Research, Inc.
- Michael Artis & Bernhard Winkler, 1998.
"The Stability Pact: Safeguarding the Credibility of the European Central Bank,"
National Institute Economic Review,
National Institute of Economic and Social Research, vol. 163(1), pages 87-98, January.
- Artis, Michael J & Winkler, Bernhard, 1997. "The Stability Pact: Safeguarding the Credibility of the European Central Bank," CEPR Discussion Papers 1688, C.E.P.R. Discussion Papers.
- McKibbin, Warwick & Marin, Will, 1999.
"The East Asian crisis : investigating causes and policy responses,"
Policy Research Working Paper Series
2172, The World Bank.
- Warwick J McKibbin & Will Martin, 1998. "The East Asian Crisis: Investigating Causes and Policy Responses," Departmental Working Papers 1998-06, The Australian National University, Arndt-Corden Department of Economics.
When requesting a correction, please mention this item's handle: RePEc:fce:doctra:0001. 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: (Francesco Saraceno)
If references are entirely missing, you can add them using this form.