International Policy Coordination in Dynamic Macroeconomic Models / Gilles Oudiz, Jeffrey Sachs.

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Oudiz, Gilles

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w1417.Publication details: Cambridge, Mass. National Bureau of Economic Research 1984.Description: 1 online resource: illustrations (black and white)Subject(s):

F - International Economics

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Abstract: Recent analyses of the gains to policy coordination have focussed on the strategic aspects of macroeconomic policy making in a static setting. A major theme is that noncooperative policy making is likely to be Pareto inefficient because of the presence of beggar-thy-neighbor policies. This paper extends the analysis to a dynamic setting, thereby introducing three important points of realism to the static game. First, the payoffs to beggar-thy-neighbor policies look very different in one-period and multiperiod games, and thus so do the gains to coordination. Second, we show that policy coordination may reduce economic welfare if governments are nyopic in their policy making, as is sometimes claimed. Third, governments act under a fundamental constraint that they cannot bind the actions of later governments, and we investigate how this constraint alters the gains to policy coordination.

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Previous	nber w14167 Lifting the Curse of Dimensionality: Measures of the Labor Legislation Climate in the States During the Progressive Era /	nber w14168 Pitfalls in Measuring Exchange Rate Misalignment: The Yuan and Other Currencies /	nber w14169 Efficient Prediction of Excess Returns /	nber w1417 International Policy Coordination in Dynamic Macroeconomic Models /	nber w14170 Optimal Policy with Heterogeneous Preferences /	nber w14171 On the Sources of the Great Moderation /	nber w14172 Home Bias at the Fund Level /	Next

August 1984.

Recent analyses of the gains to policy coordination have focussed on the strategic aspects of macroeconomic policy making in a static setting. A major theme is that noncooperative policy making is likely to be Pareto inefficient because of the presence of beggar-thy-neighbor policies. This paper extends the analysis to a dynamic setting, thereby introducing three important points of realism to the static game. First, the payoffs to beggar-thy-neighbor policies look very different in one-period and multiperiod games, and thus so do the gains to coordination. Second, we show that policy coordination may reduce economic welfare if governments are nyopic in their policy making, as is sometimes claimed. Third, governments act under a fundamental constraint that they cannot bind the actions of later governments, and we investigate how this constraint alters the gains to policy coordination.