Evaluating the Extended Target Zones Proposal for the G3

David Currie and Simon Wren-Lewis

No 221, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper evaluates the extended target zone proposal of Williamson and Miller using the National Institute world economic model (GEM). Williamson and Miller's proposals envisage that real exchange rates will be controlled by movements in relative interest rates, that fiscal policy will be used to steer nominal demand towards a target which depends on capacity utilization, inflation and the current balance, and that the average level of world interest rates will be used to control global nominal demand. We evaluate the performance of these rules for the United States, Germany and Japan over the period 1975-84, using control methods to determine the best choice of parameters in the feedback rules. We then consider how history would have differed from actual events had such rules been in place. The results suggest that such rules would have led to a significant improvement in economic performance: exchange rate variability would have been reduced and the dramatic increase in United States interest rates which took place after 1980 would have been avoided.

Keywords: Exchange Rates Targets; Feedback Rules; Fiscal Policy; Interest Rates; Policy Coordination (search for similar items in EconPapers)
Date: 1988-01
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=221 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Journal Article: Evaluating the Extended Target Zone Proposal for the G3 (1990)
Working Paper: Evaluating the Extended Target Zone Proposal for the G3 (1987)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:221

Ordering information: This working paper can be ordered from
http://www.cepr.org/ ... pers/dp.php?dpno=221

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().