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Simulating the Effects of Some Simple Coordinated versus Uncoordinated Policy

  • Jacob A. Frenkel
  • Morris Goldstein
  • Paul R. Masson

Effects of different policy rules are simulated: uncoordinated targeting of the money supply or nominal income, use of monetary policy to achieve coordinated targets for nominal or real exchange rates, and the use of monetary and fiscal policies to hit targets for internal and external balance. The following conclusions emerge: rules which performed best for some shocks performed poorly for others; monetary policy was ineffective in limiting movements in real exchange rates; unconstrained use of fiscal policy was quite powerful in influencing real variables; and dynamic instability was a potentially serious problem. Robustness to different specifications and to constraints on instruments remains to be examined.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2929.

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Date of creation: Apr 1989
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Publication status: published as Bryant, Ralph C., et al. (eds.) Macroeconomic policies in an interdependent world. Washington, D.C.: International Monetary Fund; Washington, D.C.: Brookings Institution; London: Centre for Economic Policy Research, 1989.
Handle: RePEc:nbr:nberwo:2929
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