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

  • Willem H. Buiter

The paper uses a small analytical two-region (the United States and the Rest of the Industrial World) model, to analyze three issues Concerning international economic interdependence and macroeconomic policy coordination that have been raised in connection with the September1985 World Economic Outlook published by the IMF.They are: (1) What should bethe monetary and/or fiscal response in the Rest of the Industrial World to a tightening of U.S. fiscal Policy and what should be the U.S. 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 U.S. dollar?" The paper highlights the importance of determining the causes of such a "hard landing" for the U.S.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 disappointmentis shown to be crucial.The final Section discusses and qualifies the activist policy conclusions derived from the formal analysis.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1746.

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Date of creation: Oct 1985
Date of revision:
Publication status: published as Buiter, Willem H. "Macroeconomic Policy Design in an Interdependent World Economy: An Analysis of Three Contingencies," International Monetary Fund Staff Papers, Volume 33, No. 3, September 1986.
Handle: RePEc:nbr:nberwo:1746
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  1. Buiter, Willem H, 1984. "Saddlepoint Problems in Continuous Time Rational Expectations Models: A General Method and Some Macroeconomic Examples," Econometrica, Econometric Society, vol. 52(3), pages 665-80, May.
  2. Obstfeld, Maurice & Rogoff, Kenneth, 1983. "Speculative Hyperinflations in Maximizing Models: Can We Rule Them Out?," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 675-87, August.
  3. Jeffrey Sachs, 1985. "The Dollar and the Policy Mix: 1985," NBER Working Papers 1636, National Bureau of Economic Research, Inc.
  4. Azariadis, Costas, 1981. "Self-fulfilling prophecies," Journal of Economic Theory, Elsevier, vol. 25(3), pages 380-396, December.
  5. Willem H. Buiter & Marcus H. Miller, 1983. "Costs and Benefits of an Anti-Inflationary Policy: Questions and Issues," NBER Working Papers 1252, National Bureau of Economic Research, Inc.
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