Comment on T. Persson, “Global Effects of National Stabilization Policies under Fixed and Floating Exchange Rates”

Abstract

The main concern of Persson’s paper is the effects of stabilization policies on employment in a two-country framework and under alternative exchange rate systems. This familiar issue has been a major preoccupation in the open economy macroeconomics litterature for many years. The analysis in this paper, however, is carried out in a new framework. The framework is based on a general equilibrium approach with optimizing consumers. The advantages of such an approach are that it enables us (a) to isolate the effects of policies, expectations, payment arrangements, exchange rate systems, etc. in a consistent manner; and (b) to carry out welfare evaluations. These evaluations are based on the same objective functions from which individual behavior is derived. This approach provides a departure from the more commonly used—but rather vague—notion of economic stabilization.