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Languages : en
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Author: Jeffrey A. Frankel
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Category : Macroeconomics
Languages : en
Pages : 27
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Languages : en
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Author: Jeffrey A. Frankel
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Category : Econometric models
Languages : en
Pages : 64
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Author: K. E. Rockett
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Category :
Languages : en
Pages : 39
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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
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Category : Business & Economics
Languages : en
Pages : 60
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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: Jeffrey A. Frankel
Publisher:
ISBN:
Category : Econometric models
Languages : en
Pages : 92
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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 Sachs
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Category : Economic policy
Languages : en
Pages : 25
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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: William H. Branson
Publisher: University of Chicago Press
ISBN: 0226071383
Category : Reference
Languages : en
Pages : 396
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Since the five largest industrial democracies concluded the Plaza Agreement in 1985, the theory and practice of international economic policy coordination has become the subject of spirited academic and public-policy debate. While some view policy coordination as crucial for the construction of an improved international monetary system, others fear that it risks delaying or weakening the implementation of macroeconomic and structural policies. In these papers and comments, prominent international economists consider past and present interpretations of the meaning of international policy coordination; conditions necessary for coordination to be beneficial both to the direct participants and the global economy; influential factors for the quantitative impact of coordination; obstacles to coordination; the most—and least—effective methods of coordination; and future directions of the coordination process, including processes associated with greater fixity of exchange rates. These studies will be readily accessible to policymakers, while offering sophisticated analyses to interested scholars of the global economy.
Author: Andrew J. Hughes Hallett
Publisher: Springer Science & Business Media
ISBN: 1475747381
Category : Political Science
Languages : en
Pages : 222
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The launch of European Monetary Union (EMU) marked the beginning of a new era, and its establishment has proved an impressive success at the technical, legal, and procedural level. After all, EMU has accelerated economic and political integration in the European Union and tied the economies of the Member States closer together. However, the performance of the euro, high unemployment rates, uneven output and investment growth, and the issue of structural reforms that have yet to be tackled have raised questions about the performance of EMU in practice. There is a general consensus on the justification for economic policy coordination. The existing literature on economic policy coordination, however, seems far from able to provide robust conclusions about how to organize the necessary interaction of institutions and policies. Therefore, there seems to be a case for re-examining the subject under the new framework set by EMU. The objective of such a reassessment is to enhance the understanding of what type of coordination and what institutional setting for policy coordination can be expected to be most favorable. Challenges for Economic Policy Coordination within European Monetary Union provides an intellectually stimulating contribution to the ongoing debate.
Author: Peter B. Kenen
Publisher: Manchester University Press
ISBN: 9780719030390
Category : Business & Economics
Languages : en
Pages : 136
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