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International Policy Coordination in a Dynamic Macroeconomic Model

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  • Jeffrey Sachs

Abstract

This paper illustrates the role for macroeconomic policy coordination when interdependent economies are pursuing disinflationary policies. Under flexible exchangerates, policy makers have an incentive to reduce inflation by pursuing contractionary policies that yield a currency appreciation. In a Nash, perfect foresight equilibrium,policy authorities in the model pursue contractionary policies to achieve currency appreciation, but these attempts cancel out, with the result that all countries end up pursuing excessively contractionary policies (relative to asymmetric Pareto optimum). The paper presents these resultsin a two-country, infinite-horizon difference game.

Suggested Citation

  • Jeffrey Sachs, 1983. "International Policy Coordination in a Dynamic Macroeconomic Model," NBER Working Papers 1166, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:1166
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    File URL: http://www.nber.org/papers/w1166.pdf
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    References listed on IDEAS

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    1. Willem H. Buiter & Marcus H. Miller, 1980. "Monetary Policy and International Competitiveness," NBER Working Papers 0591, National Bureau of Economic Research, Inc.
    2. Blanchard, Olivier Jean & Kahn, Charles M, 1980. "The Solution of Linear Difference Models under Rational Expectations," Econometrica, Econometric Society, vol. 48(5), pages 1305-1311, July.
    3. Bresnahan, Timothy F, 1981. "Duopoly Models with Consistent Conjectures," American Economic Review, American Economic Association, vol. 71(5), pages 934-945, December.
    4. Matthew B. Canzoneri & Jo Anna Gray, 1983. "Two essays on monetary policy in an interdependent world," International Finance Discussion Papers 219, Board of Governors of the Federal Reserve System (U.S.).
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    Cited by:

    1. Benigno, Gianluca & Benigno, Pierpaolo, 2006. "Designing targeting rules for international monetary policy cooperation," Journal of Monetary Economics, Elsevier, vol. 53(3), pages 473-506, April.
    2. Gilles Oudiz & Jeffrey Sachs, 1984. "International Policy Coordination in Dynamic Macroeconomic Models," NBER Working Papers 1417, National Bureau of Economic Research, Inc.
    3. Kenneth S. Rogoff, 1983. "Productive and counterproductive cooperative monetary policies," International Finance Discussion Papers 233, Board of Governors of the Federal Reserve System (U.S.).
    4. Gerken, Egbert, 1985. "Auf dem Wege zu einer Theorie der internationalen Koordination der Agrarpolitik," Kiel Working Papers 229, Kiel Institute for the World Economy (IfW).
    5. Günter Coenen & Giovanni Lombardo & Frank Smets & Roland Straub, 2007. "International Transmission and Monetary Policy Cooperation," NBER Chapters,in: International Dimensions of Monetary Policy, pages 157-192 National Bureau of Economic Research, Inc.
    6. Cohen, Daniel & Wyplosz, Charles, 1995. "Price and trade effects of exchange rate fluctuations and the design of policy coordination," Journal of International Money and Finance, Elsevier, vol. 14(3), pages 331-347, June.
    7. Leontyeva, Elena & Narkevich, Sergey, 2015. "Optimal Practice of Creation and Management of Gold Reserves," Published Papers mak12, Russian Presidential Academy of National Economy and Public Administration.

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