Macroeconomic Policies in the OECD and LDC External Adjustmemt

Jeffrey Sachs and Warwick McKibbin

No 1534, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In this paper, the authors describe a simulation model for analyzing the effects of macroeconomic policies in the OECD on global macroeconomic equilibrium. Particular attention is paid to the effects on developing countries of alternative mixes of monetary and fiscal policies in the OECD.Though the model is quite small, it has several properties which make it attractive for policy analysis. First, the important stock-flow relationships and intertemporal budget constraints are carefully observed, so that the modelis useful for short-run and long-run analysis. Budget deficits, for example,cumulate into a stock of public debt which must be serviced, while current account deficits cumulate into a stock of foreign debt. Second, the asset markets are forward looking, so that the exchange rate is conditioned by the entire future path of policies rather than by a set of short-run expectations. Third, the model is amenable to policy optimization exercises, and in particular can be used to study the effects of policy coordination versus non-coordination in the OECD, on global macroeconomic equilibrium.

Date: 1985-01
Note: ITI IFM
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Working Paper: Macroeconomic Policies in the OECD and LDC External Adjustment (1985)
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