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A Two-Country Analysis of International Targeting of Nominal GNP

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  • Jeffrey A. Frankel and Norbert Funke.

Abstract

The paper starts by reviewing three sorts of obstacles to successful coordination: the difficulties of, respectively, compliance, credibility, and certainty. It is argued that nominal-GNP-targeting may have a good chance of overcoming such obstacles. A two-county model is used to evaluate an internationally coordinated version of nominal GNP-targeting in the presence of domestic and/or foreign shocks to supply, money demand, and goods demand. In this simple framework nominal GNP-targeting comes out fairly promising, although it does not dominate alternative regimes (including global monetary targeting, global price rules or discretionary policy) under all circumstances. Simulation results based on the McKibbin-Sachs Global Model are in line with the theoretical findings.
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Suggested Citation

  • Jeffrey A. Frankel and Norbert Funke., 1994. "A Two-Country Analysis of International Targeting of Nominal GNP," Center for International and Development Economics Research (CIDER) Working Papers C94-035, University of California at Berkeley.
  • Handle: RePEc:ucb:calbcd:c94-035
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    References listed on IDEAS

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    1. Von Furstenberg, George M. & Daniels, Joseph P., 1991. "Policy undertakings by the seven "summit" countries: ascertaining the degree of compliance," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 35(1), pages 267-307, January.
    2. Bayoumi, Tamim & Eichengreen, Barry, 1994. "Macroeconomic Adjustment under Bretton Woods and the Post-Bretton-Woods Float: An Impulse-Response Analysis," Economic Journal, Royal Economic Society, vol. 104(425), pages 813-827, July.
    3. Jeffrey A. Frankel., 1993. "Foreign Exchange Policy, Monetary Policy and Capital Market Liberalization in Korea," Center for International and Development Economics Research (CIDER) Working Papers C93-008, University of California at Berkeley.
    4. Frankel, Jeffrey A. & Funke, Norbert, 1994. "A Two-Country Analysis of International Targeting of Nominal GNP," Center for International and Development Economics Research (CIDER) Working Papers 233377, University of California-Berkeley, Department of Economics.
    5. Tamim Bayoumi and Barry Eichengreen., 1993. "One Money or Many? On Analyzing the Prospects for Monetary Unification in Various Parts of the World," Center for International and Development Economics Research (CIDER) Working Papers C93-030, University of California at Berkeley.
    6. Roland VAUBEL, 1985. "International Collusion or Competition for Macroeconomic Policy Coordination? A Restatement," Discussion Papers (REL - Recherches Economiques de Louvain) 1985031, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    7. Barry Eichengreen and Beth Simmons., 1993. "International Economics and Domestic Politics: Notes on the 1920s," Center for International and Development Economics Research (CIDER) Working Papers C93-029, University of California at Berkeley.
    8. West, Kenneth D, 1986. "Targeting Nominal Income: A Note," Economic Journal, Royal Economic Society, vol. 96(384), pages 1077-1083, December.
    9. Gilles Oudiz & Jeffrey Sachs, 1984. "Macroeconomic Policy Coordination among the Industrial Economies," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 15(1), pages 1-76.
    10. Von Fursenberg, G.M. & Daniels, J.P., 1992. "Economic Summit Declarations, 1975-1989: Examining the Written Record of International Cooperation," Princeton Studies in International Economics 72, International Economics Section, Departement of Economics Princeton University,.
    11. Jeff Frankel, Steve Phillips, and Menzie Chinn., 1992. "Financial and Currency Integration in the European Monetary System: The Statistical Record," Center for International and Development Economics Research (CIDER) Working Papers C92-005, University of California at Berkeley.
    12. Currie, David & Levine, Paul & Pearlman, Joseph, 1992. "European monetary union or hard EMS?," European Economic Review, Elsevier, vol. 36(6), pages 1185-1204, August.
    13. Michael D. Bradley & Dennis W. Jansen, 1988. "The optimality of nominal income targeting when wages are indexed to price," Working Papers 1989-005, Federal Reserve Bank of St. Louis.
    14. Feldstein, Martin S, 1988. "Distinguished Lecture on Economics in Government: Thinking about International Economic Coordination," Journal of Economic Perspectives, American Economic Association, vol. 2(2), pages 3-13, Spring.
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    Cited by:

    1. Maurice Obstfeld, 1993. "International Capital Mobility in the 1990s," NBER Working Papers 4534, National Bureau of Economic Research, Inc.
    2. Stein, Ernesto H. & Streb, Jorge M., 1998. "Political stabilization cycles in high-inflation economies," Journal of Development Economics, Elsevier, vol. 56(1), pages 159-180, June.
    3. Jeffrey A. Frankel, 1993. "Monetary regime choices for a semi-open country," Pacific Basin Working Paper Series 93-02, Federal Reserve Bank of San Francisco.
    4. Frankel, Jeffrey A. & Funke, Norbert, 1994. "A Two-Country Analysis of International Targeting of Nominal GNP," Center for International and Development Economics Research (CIDER) Working Papers 233377, University of California-Berkeley, Department of Economics.
    5. Bardhan, Pranab, 1995. "The contributions of endogenous growth theory to the analysis of development problems: An assessment," Handbook of Development Economics,in: Hollis Chenery & T.N. Srinivasan (ed.), Handbook of Development Economics, edition 1, volume 3, chapter 46, pages 2983-2998 Elsevier.
    6. Sylvia Staudinger, 2000. "Inflation Targeting versus Nominal Income Targeting," CESifo Working Paper Series 301, CESifo Group Munich.

    More about this item

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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