Advertisement

Open Economies Review

, Volume 30, Issue 4, pp 719–737 | Cite as

Policy Coordination Under Model Disagreement and Uncertainty

  • Carsten HefekerEmail author
  • Michael Neugart
Research Article
  • 99 Downloads

Abstract

What are the incentives for governments to coordinate their policies internationally when there is model disagreement and uncertainty? We build a model where countries disagree on policy targets and how policies affect the economies, and show that uncertainty not only determines the type of cooperative policy but also whether countries want to cooperate at all. Countries facing larger model disagreement also need to face larger uncertainty with respect to policy spillovers to agree on cooperation. Thus, uncertainty about spillovers can be a substitute for model agreement.

Keywords

Policy coordination Uncertainty Ideological commitment Model disagreement 

JEL Classification

F42 F53 F55 F68 

Notes

References

  1. Acemoglu D, Chernozhukov V, Yildiz M (2016) Fragility of asymptotic agreement under Bayesian learning. Theor Econ 11:187–225CrossRefGoogle Scholar
  2. Acemoglu D, Shimer R (2000) Productivity gains from unemployment insurance. Eur Econ Rev 44:1195–1224CrossRefGoogle Scholar
  3. Aizenman J, Chinn MD, Ito H (2016) Monetary policy spillovers and the trilemma in the new normal: periphery country sensitivity to core country conditions. J Int Money Financ 68:298–330CrossRefGoogle Scholar
  4. Alesina A, Rosenthal H (1995) Partisan Politics, Divided Government and the Economy. Cambridge University Press, CambridgeCrossRefGoogle Scholar
  5. Angeloni I, Pisani-Ferry J (2012) The G20: characters in search of an author. Bruegel Working Paper, 2012/04Google Scholar
  6. Auerbach AJ, Gorodnichenko Y (2013) Output spillovers from fiscal policy. Am Econ Rev 103:141–46CrossRefGoogle Scholar
  7. Babeckỳ J, Campos NF (2011) Does reform work? An econometric survey of the reform–growth puzzle. J Comp Econ 39:140–158CrossRefGoogle Scholar
  8. Benabou R (2008) Ideology. J Eur Econ Assoc 6:321–352CrossRefGoogle Scholar
  9. Benigno G, Benigno P (2006) Designing targeting rules for international monetary policy cooperation. J Monet Econ 53:473–506CrossRefGoogle Scholar
  10. Biljanovska N, Grigoli F, Hengge M (2017) Fear Thy Neighbor: Spillovers from Economic Policy Uncertainty. International Monetary Fund, WP/17/240Google Scholar
  11. Binswanger J, Oechslin M (2015) Disagreement and learning about reforms. Econ J 125:853–886CrossRefGoogle Scholar
  12. Bodenstein M, Guerrieria L, LaBriola J (2018) Macroeconomic policy games. Journal of Monetary Economics, forthcomingGoogle Scholar
  13. Bordo J, Istrefi K (2018) Perceived FOMC: the making of hawks, doves and swingers. NBER Working Paper 24650Google Scholar
  14. Brainard WC (1967) Uncertainty and the effectiveness of policy. Am Econ Rev 57:411–425Google Scholar
  15. Brunnermeier MK, James H, Landau J-P (2016) The Euro and the Battle of Ideas. Princeton University Press, PrincetonCrossRefGoogle Scholar
  16. Buiter WH, Marston RCE (1986) International Economic Policy Coordination. Cambridge University Press, CambridgeGoogle Scholar
  17. Canzoneri MB, Cumby RE, Diba BT (2005) The need for international policy coordination: what’s old, what’s new, what’s yet to come? J Int Econ 66:363–384CrossRefGoogle Scholar
  18. Canzoneri MB, Henderson DW (1991) Monetary Policy in Interdependent Economies: a Game-Theoretic Approach. MIT Press, CambridgeGoogle Scholar
  19. Cooper RN (1969) Macroeconomic policy adjustment in interdependent economies. Q J Econ 83:1–24CrossRefGoogle Scholar
  20. Cooper RN (1987) Economic Policy in an Interdependent World. MIT Press, CambridgeGoogle Scholar
  21. Cooper RN, Eichengreen B, Henning CR, Holtham G, Putnam RD (1989) Can Nations Agree? Issues in International Economic Cooperation. Brookings Institution Press, WashingtonGoogle Scholar
  22. Denzau AT, North DC (1994) Shared mental models: ideologies and institutions. Kyklos 47:3–31CrossRefGoogle Scholar
  23. Drazen A (2000) Political Economy in Macroeconomics. Princeton University Press, PrincetonCrossRefGoogle Scholar
  24. Eichengreen B (2013) International policy coordination: the long view. In: Feenstra RC, Taylor AM (eds) Globalization in an Age of Crisis: Multilateral Economic Cooperation in the Twenty-First Century. University of Chicago Press, Chicago, pp 43–82CrossRefGoogle Scholar
  25. Frankel JA (2016) International coordination. NBER Working Paper 21878Google Scholar
  26. Frankel JA, Rockett KE (1988) International macroeconomic policy coordination when policymakers do not agree on the true model. Am Econ Rev 78:318–340Google Scholar
  27. Ghosh A, Masson P (1994) Economic Cooperation in an Uncertain World. Blackwell, OxfordGoogle Scholar
  28. Guiso L, Herrera H, Morelli M (2016) Cultural differences and institutional integration. J Int Econ 99:S97–S113CrossRefGoogle Scholar
  29. Hamada K (1976) A strategic analysis of monetary interdependence. J Polit Econ 84:677–700CrossRefGoogle Scholar
  30. Hayo B (1998) Inflation culture, central bank independence and price stability. Eur J Polit Econ 14:241–263CrossRefGoogle Scholar
  31. Hefeker C, Neugart M (2018) Non-cooperative and cooperative policy reforms under uncertainty and spillovers. J Comp Econ 46:94–102CrossRefGoogle Scholar
  32. International Monetary Fund (2013) IMF Multilateral Policy Issues Report: 2013 Spillover Report. International Monetary Fund, WashingtonGoogle Scholar
  33. Irwin DA (2017) The false promise of protectionism: why trump’s trade policy could backfire. Foreign Aff 96:45–56Google Scholar
  34. Katz LF, Meyer BD (1990) The impact of the potential duration of unemployment benefits on the duration of unemployment. J Public Econ 41:45–72CrossRefGoogle Scholar
  35. Kenen PB (1990) The coordination of macroeconomic policies. In: Branson WH, Frenkel JA, Goldstein M (eds) International Policy Coordination and Exchange Rate Fluctuations. University of Chicago Press, Chicago, pp 63–108Google Scholar
  36. Landmann O (2018) On the logic of fiscal policy coordination in a monetary union. Open Econ Rev 29:69–87CrossRefGoogle Scholar
  37. Mody A (2018) Eurotragedy: a Drama in Nine Acts. Oxford University Press, OxfordCrossRefGoogle Scholar
  38. Mukand S, Rodrik D (2018) The political economy of ideas: on ideas versus interests in policymaking. NBER Working Paper 24467Google Scholar
  39. Obstfeld M, Rogoff K (2002) Global implications of self-oriented national monetary rules. Q J Econ 117:503–535CrossRefGoogle Scholar
  40. Ostry JD, Ghosh AR (2016) On the obstacles to international policy coordination. J Int Money Financ 67:25–40CrossRefGoogle Scholar
  41. Oudiz G, Sachs J (1984) Macroeconomic policy coordination among the industrial economies. Brook Pap Econ Act 1984:1–75CrossRefGoogle Scholar
  42. Persson T, Tabellini GE (2000) Political Economics: Explaining Economic Policy. MIT Press, CambridgeGoogle Scholar
  43. Rodrik D (2014) When ideas trump interests: preferences, worldviews, and policy innovations. J Econ Perspect 28:189–208CrossRefGoogle Scholar
  44. Saint-Paul G (2018) The possibility of ideological bias in structural macroeconomic models. Am Econ J Macroecon 10:216–41CrossRefGoogle Scholar
  45. Stiglitz JE (2002) Globalization and its Discontents. Norton, New YorkGoogle Scholar
  46. Willett TD (1999) Developments in the political economy of policy coordination. Open Econ Rev 10:221–253CrossRefGoogle Scholar
  47. Woods N (2006) The Globalizers: the IMF, the World Bank and their Borrowers. Cornell University Press, IthacaGoogle Scholar

Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2019

Authors and Affiliations

  1. 1.University of SiegenSiegenGermany
  2. 2.CESifoMünchenGermany
  3. 3.Technische Universität DarmstadtDarmstadtGermany

Personalised recommendations