International Macroeconomic Policy Coordination when Policy-makers Disagree on the Model PDF Download
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Author: Jeffrey A. Frankel
Publisher:
ISBN:
Category : Macroeconomics
Languages : en
Pages : 27
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Book Description
Author: Jeffrey A. Frankel
Publisher:
ISBN:
Category : Macroeconomics
Languages : en
Pages : 27
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Book Description
Author:
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Author: K. E. Rockett
Publisher:
ISBN:
Category :
Languages : en
Pages : 39
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Book Description
The existing literature on international macroeconomic policy coordination makes the unrealistic assumption that policy-makers all know the true model, from which it follows in general that the Nash bargaining solution is superior to the Nash non-cooperative solution. But everything changes once we recognize that policy-makers' models differ from each other and therefore from the "true" model. It is still true that the two countries will in general be able to agree on a cooperative policy package that each believes will improve the objective function relative to the Nash non-cooperative solution. However, the bargaining solution is as likely to move the target variables in the wrong direction as in the right direction, in the light of a third true model. This paper illustrates these theoretical points with monetary and fiscal multipliers taken from simulations of eight leading international econometric models. (It is a sequel to NBER Working Paper 1925, which considered coordination between the domestic monetary and fiscal authorities.) Here we first consider coordination between U.S. and non-U.S. central banks. We find that out of 512 possible combinations of models that could represent U.S. beliefs, non-U.S. beliefs and the true model, coordination improves U.S. welfare in only 289 cases, reducing it in 206, and improves the welfare of other OECD countries in only 297 cases, reducing it in 198. Then we consider coordination with both monetary and fiscal policy. We find that out of 512 combinations, coordination improves U.S. welfare in 183 cases, reducing it in 228, and improves the welfare of other OECD countries in 283 cases, reducing it in 219. A final section of the paper considers possible extensions of the framework, dealing with uncertainty
Author: Jeffrey A. Frankel
Publisher:
ISBN:
Category : Econometric models
Languages : en
Pages : 64
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Author: Jeffrey A. Frankel
Publisher:
ISBN:
Category : Econometric models
Languages : en
Pages : 92
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Book Description
This paper makes use of the simulation results of 12 leading large international econometric models, as to the effects of commonly specified changes in monetary and fiscal policy, conducted under the Brookings exercise "Empirical Macroeconomics for Interdependent Economies." The first half of the paper examines disagreement among the models on the signs of policy multipliers, and how such disagreement compares to the ambiguities appearing in the theoretical literature. There turns out to be relatively little disagreement as to the effects on output, prices and the exchange rate. The greatest disagreement is rather over the question whether a monetary expansion worsens or improves the current account. The second half of the paper examines the implications for international macroeconomic policy coordination. The existing literature makes the unrealistic assumption that policy-makers all know the true model, from which it follows that the Nash bargaining solution is in general superior to the Nash competitive solution. But everything changes once we recognize that policy-makers' models, as the models in the Brookings simulations, differ from each other and therefore from the "true" model. When the central bank and fiscal authorities subscribe to conflicting models, it is still true that (1) the competitive equilibrium is sub-optimal, and that (2) the two authorities will in general be able to agree on a cooperative policy package that each believes will improve the objective function; however, (3) the bargaining solution is as likely to move the target variables in the wrong direction as in the right direction, in the light of a third true model. Out of 1,210 possible combinations of different models subscribed to by the two policy authorities and models representing reality, bargaining raises welfare in only 819 cases. The conclusion is that disagreement as to the true model maybe a more serious obstacle to successful policy coordination than is institutional failure to enforce Pareto-improving solutions.
Author: Jeffrey A. Frankel
Publisher:
ISBN:
Category : Business & Economics
Languages : en
Pages : 60
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Book Description
Coordination of macroeconomic policies among countries is not as straightforward in practice as it appears in theory. This paper discusses three obstacles to successful international coordination: (1) uncertainty as to the correct initial position of the economy, (2) uncertainty as to the correct objective, and (3) uncertainty as to the correct model linking policy actions to their effects in the economy. Previous results (NBER Working Paper No. 2059) showed that coordination under conditions of policy-maker disagreement about the correct model could very well reduce national welfare rather than raise it. This paper extends those results to allow for explicit policy-maker recognition of uncertainty regarding the correct model, as well as uncertainty regarding the model to which other policy-makers subscribe. It also shows that the potential gains from coordination, even when positive, are usually small relative to the gains from unilateral policy changes based on improved knowledge of the model.
Author: Mr.Paul R. Masson
Publisher: International Monetary Fund
ISBN: 9781557751119
Category : Business & Economics
Languages : en
Pages : 438
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Book Description
Copublished with the Brookings Institution, Washington D.C. and the Centre for Economic Policy Research, London, and edited by Ralph Bryant, David Currie, Jacob A. Frenkel, Paul Masson, and Richard Portes, this volume considers economic interdependence among well developed countries as well as between them and the developing regions of the world.
Author: Michael Carlberg
Publisher: Springer Science & Business Media
ISBN: 9783540244455
Category : Business & Economics
Languages : en
Pages : 336
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Book Description
This book studies the international coordination of monetary and fiscal policies in the world economy. It carefully discusses the process of policy competition and the structure of policy cooperation. As to policy competition, the focus is on monetary and fiscal competition between Europe and America. Similarly, as to policy cooperation, the focus is on monetary and fiscal cooperation between Europe and America. The spillover effects of monetary policy are negative while the spillover effects of fiscal policy are positive. The policy targets are price stability and full employment. The policy makers follow either cold-turkey or gradualist strategies. Policy expectations are adaptive or rational. The world economy consists of two, three or more regions. The present book is part of a larger research project on European Monetary Union, see the references at the back of the book. Some parts of this project were presented at the World Congress of the International Economic Association in Lisbon. Other parts were presented at the International Institute of Public Finance, at the Macro Study Group of the German Economic Association, at the Annual Meeting of the Austrian Economic Association, at the Gottingen Workshop on International Economics, at the Halle Workshop on Monetary Economics, at the Research Seminar on Macroeconomics in Freiburg, and at the Passau Workshop on International Economics.
Author: Jeffrey Sachs
Publisher:
ISBN:
Category : Economic policy
Languages : en
Pages : 25
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Book Description
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
Author: International Monetary Fund
Publisher: International Monetary Fund
ISBN: 1451844239
Category : Business & Economics
Languages : en
Pages : 33
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Book Description
Recently, monetary authorities have increasingly focused on implementing policies to ensure price stability and strengthen central bank independence. Simultaneously, in the fiscal area, market development has allowed public debt managers to focus more on cost minimization. This “divorce” of monetary and debt management functions in no way lessens the need for effective coordination of monetary and fiscal policy if overall economic performance is to be optimized and maintained in the long term. This paper analyzes these issues based on a review of the relevant literature and of country experiences from an institutional and operational perspective.
