International Coordination in the Design of Macroeconomic Policy Rules
The paper examines international issues that arise in the design and evaluation of macroeconomic policy rules. It begins with a theoretical investigation of the effects of fiscal and monetary policy in a two-country rational expectations model with staggered wage and price setting and with perfect capital mobility. The results indicate that with the appropriate choice of policies and with flexible exchange rates, demand shocks need not give rise to international externalities or coordination issues. Price shocks, however, do create an externality, and this is the focus of the empirical part of the paper. Using a simple 7 country model -- consisting of Canada, France, Germany, Italy,Japan, the United Kingdom, and the United States -- optimal cooperative and non-cooperative (Nash) policy rules to minimize the variance of output and inflation in each country are calculated. The cooperative policies are computed using standard dynamic stochastic programming techniques and the non-cooperative policies are computed using an algorithm developed by Finn Kydland. The central result is that the cooperative policy rules for these countries are more accommodative to inflation than the non-cooperative policy rules.
|Date of creation:||Nov 1984|
|Publication status:||published as Taylor, John B. "International Coordination in the Design of Macroeconomic Policy Rules," European Economic Review, North Holland, Vol. 28, Nos. 1-2 ,(June-July 1985), pp. 53-81.|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
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.:
- Shubik, Martin, 2000.
"Game theory models and methods in political economy,"
Handbook of Mathematical Economics,
in: K. J. Arrow & M.D. Intriligator (ed.), Handbook of Mathematical Economics, edition 4, volume 1, chapter 7, pages 285-330
- Martin Shubik, 1977. "Game Theory Models and Methods in Political Economy," Cowles Foundation Discussion Papers 476, Cowles Foundation for Research in Economics, Yale University.
- Papell, David H., 1984. "Activist monetary policy and exchange-rate overshooting: The Deutsche mark/dollar rate," Journal of International Money and Finance, Elsevier, vol. 3(3), pages 293-310, December.
- David H. Papell, 1983. "Activist Monetary Policy and Exchange Rate Overshooting: The Deutsche Mark/Dollar Rate," NBER Working Papers 1195, National Bureau of Economic Research, Inc.
- 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. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:1506. 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: ()
If references are entirely missing, you can add them using this form.