Rules, Reputation and Macroeconomic Policy Coordination

Author： David Currie; Paul Levine

Publisher： Cambridge University Press‎

Publication year： 1993

E-ISBN: 9780511834042

P-ISBN(Paperback): 9780521441964

Subject： F019.6 theory of economic policy

Keyword：宏观经济管理,宏观经济学

Language： ENG

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Rules, Reputation and Macroeconomic Policy Coordination

Description

In this book David Currie and Paul Levine address a broad range of issues concerning the design and conduct of macroeconomic policy in open economies. Adopting neo-Keynesian models for which monetary and fiscal policy have short-term real effects, they analyse active stabilisation policies in both a single- and multi-country context. Questions addressed include: the merits of simple policy rules, policy design in the face of uncertainty and international policy coordination. A central feature of the book is the treatment of credibility and the effect of a policy-maker's reputation for sticking to announced policies. These considerations are integrated with coordination issues to produce a unique synthesis. The volume develops optimal control methods and dynamic game theory to handle relationships between governments and a conscious rational private sector and produces a unified, coherent approach to the subject. This book will be of interest to students and teachers of open economy macroeconomics and to professional economists interested in using macroeconomic models to design policy.

Chapter

Part I General issues

1 Macroeconomic policy design and control theory - a failed partnership?

Notes

2 International policy coordination - a survey

1 Introduction

2 The inefficiency of non-cooperative policies

3 Reputation

4 Sustainability

5 Policy coordination: does coordination pay?

6 The consequences of model uncertainty

7 Simple rules

8 Conclusions

3 The European road to monetary union

Transaction costs and exchange-rate uncertainty

Policy cooperation: the general case

Floating exchange rates, the ERM and EMU

The time-inconsistency issue

Credibility and EMU

The constitution of the ECB

Conclusions

Part II Theory and methodology

4 The design of feedback rules in linear stochastic rational expectations models

1 Introduction

2 The standard control problem

3 The deterministic control problem with rational expectations

4 The stochastic control problem with RE

5 An 'overstable' feedback rule

6 Illustrative examples

Notes

5 Credibility and time consistency in a stochastic world

1 Introduction

2 Optimal policy with precommitment

3 Credibility and reneging

4 Time-consistent policy

5 The sustainability of the optimal policy

6 An application to a specific dynamic model

7 Results

8 Conclusions

Appendix

Notes

6 Should rules be simple?

1 Introduction

2 The model

3 Precommitment and discretionary policies

4 Learning under incomplete information

5 Conclusions

Appendix The three policy rules

Notes

7 Macroeconomic policy design using large econometric rational expectations models

1 Introduction

2 Policy effectiveness in the LBS model

3 Policy design on a linear rational expectations model

4 Results

5 Conclusions

Appendix 1 Linear reduction

Appendix 2 LBS model variables

Notes

Part III Fiscal and monetary policy in interdependent economies

8 Macroeconomic policy design in an interdependent world

1 Introduction

2 The solution procedure

3 The model

4 The design of rules for monetary and fiscal policy in a small open economy

5 The cooperative two-country control problem

6 Two-country non-cooperative games

7 Conclusions

Appendix

Notes

9 Does international macroeconomic policy coordination pay and is it sustainable?: a two-country analysis

1 Introduction

2 Policy coordination as a supergame

3 A non-cooperative equilibrium with reputation

4 Other non-cooperative equilibria

5 The cooperative equilibrium

6 The model

7 Results

8 Conclusions

Notes

10 International cooperation and reputation in an empirical two-bloc model

1 Introduction

2 Description of Minilink

3 The gains from cooperation

4 The long-run effects of alternative regimes

5 The sustainability of the cooperative reputational policy

6 Conclusions

Notes

11 Fiscal policy coordination, inflation and reputation in a natural rate world

1 Introduction

2 The model

3 Equilibrium

4 Monetary policy

5 Fiscal policy

6 Conclusion

Appendix

Note

12 The use of simple rules for international policy coordination

1 Introduction

2 Minilink in a stochastic environment

3 Complex, optimal versus simple, sub-optimal rules

4 The sustainability of cooperative rules

5 Results

6 Conclusions

Appendix: Details of regimes

Notes

13 Evaluating the extended target zone proposal for the G3

1 The structure of GEM

2 The extended target zone proposal

3 An optimal rule

4 Historical paths

5 Conclusions

Appendix

Notes

References

Index

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