Template-Type: ReDIF-Paper 1.0
Title: Optimum Policy Domains in an Interdependent World
Author-Name: Michael P. Evers
Author-Email: mevers@uni-bonn.de
Classification-JEL: F41, F42, E62, E63
Keywords: International Policy Coordination; Monetary and Fiscal Policy Interaction; Beggar-Thy-Neighbor; New Open Economy Macroeconomics
Abstract: In this paper, I argue that international policy
	coordination requires to include both monetary as well as fiscal
	policy because both sides include policy instruments that allow
	the strategic manipulation of the country's terms of trade. Hence,
	the coordination of one part of national macroeconomic policies
	through an international agreement still leaves room for national
	authorities to still unilaterally manipulate the terms of trade by
	means of different policy instruments. In a simple and tractable
	dynamic stochastic two-country sticky-wage model in line with the
	recent New Open Economy Macroeconomics it is demonstrated that
	potential gains from international policy coordination are 
	squandered if policymakers only cooperate on monetary policy.
	Moreover, by letting the fiscal policy instruments be chosen
	non-cooperatively, monetary policy coordination might even 
	create welfare losses as compared to no macroeconomic policy 
	coordination at all.
Note: 
Length: 26
Creation-Date: 2007-08
Revision-Date: 
File-URL: http://www.wiwi.uni-bonn.de/bgsepapers/bonedp/bgse12_2007.pdf
File-Format: application/pdf
Handle: RePEc:bon:bonedp:bgse12_2007