Dynamic Strategic Monetary Policies and Coordination in Interdependent Economies

Stephen J Turnovsky, Tamer Basar and Vasco d'Orey

American Economic Review, 1988, vol. 78, issue 3, 341-61

Abstract: This paper develops strategic monetary policies using a standard two-country macro model under flexible exchange rates. The equilibria considered include feedback Nash and feedback Stackelberg, both of which are compared to the Pareto optimal cooperative equilibrium. The optimal policies are obtained as feedback rules in which real money supplies are adjusted to movements in the real exchange rate. The properties of these policies and their welfare implications are analyzed using numerical simulations. The contrast in the present results with those obtained previously for a short-run horizon suggest the importance of both intertemporal and intratemporal tradeoffs in the d etermination of optimal strategic policies. Copyright 1988 by American Economic Association.

Date: 1988
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