Macroeconomic Policy Design in an Interdependent World Economy: An Analysis of Three Contingencies

Willem Buiter

No 92, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: The paper uses a small analytical model of two regions, the United States and the Rest of the Industrial World, to analyze three topical issues concerning international economic interdependence and macroeconomic policy coordination. They are: (1) What should be the monetary and/or fiscal response in the Rest of the Industrial World to a tightening of United States fiscal policy and what should be the United States monetary response? (2) What should be the monetary and/or fiscal response in the United States and in the Rest of the Industrial World to a 'collapse of the United States dollar?' The paper highlights the importance of determining the causes of such a 'hard landing' for the United States dollar, as the appropriate policy responses are very sensitive to this; (3) What should be the macroeconomic policy response in the Industrial World to a disappointing real growth performance? Again the correct identification of the reason(s) for the disappointment is shown to be crucial. The final section discusses and qualifies the activist policy conclusions derived from the formal analysis.

Keywords: Exchange Rates; International Economic Interdependence; Macroeconomic Policy Design; United States Dollar Collapse (search for similar items in EconPapers)
Date: 1986-01
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Related works:
Chapter: Macroeconomic Policy Design in an Interdependent World Economy: An Analysis of Three Contingencies (1988)
Working Paper: Macroeconomic Policy Design in an Interdependent World Economy: An Analysis of Three Contingencies (1985)
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