An empirical analysis of policy co-ordination in the United States, Japan and Europe
Co-ordination of macroeconomic policy has been a major topic at recent summit meetings, and has been the subject of a number of theoretical studies. However, relatively little empirical research exists on policy co-ordination. This chapter is an attempt to help fill this gap. The chapter considers the quantitative importance of the co-ordination of fiscal and monetary policy under flexible exchange rates. We also evaluate the mechanisms by which the effects of macroeconomic policy are transmitted abroad. The nature of the equilibrium reached in the absence of co-ordination is also analysed, and the empirical results are related to the theoretical literature. The analysis is based on simulations with the Multicountry Model (MCM) developed at the Federal Reserve Board.
KeywordsExchange Rate Interest Rate Nash Equilibrium Monetary Policy Current Account
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