Rules, Reputation and Macroeconomic Policy Coordination
Cambridge University Press, Aug 12, 1993 - Business & Economics - 430 pages
In this book David Currie and Paul Levine address a broad range of issues concerning the design and conduct of macroeconomic policy in open economies. Adopting neo-Keynesian models for which monetary and fiscal policy have short-term real effects, they analyse active stabilisatian policies in both a single- and multi-country context. Questions addressed include: the merits of simple policy rules, policy design in the face of uncertainty, and international policy coordination. A central feature of the book is the treatment of credibility and the effect for a policy-maker's reputation of sticking to announced policies. These considerations are integrated with coordination issues to produce a unique synthesis. The volume develops optimal control methods and dynamic game theory to handle relationships between governments and conscious rational private sectors, and produces a unified, coherent approach to the subject. This book will be of interest to students and teachers of open economy macroeconomics, and to professional economists interested in using macroeconomic models in policy design.
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aggregate agreement analysis apply assume Average becomes cent changes chapter condition consider consistent cooperation coordination costs credibility Currie demand depends deterministic discount discussed displacement disturbances dynamic economy effects equations equilibrium examine example exchange rate exchange-rate exists face feedback rule ﬁrst ﬁscal policy function future gains given gives important incentive inconsistency increase inﬂation initial interest issues Levine linear long-run macroeconomic matrix minimise monetary policy Nash NCNR nominal non-cooperative non-reputational Note objective obtained open-loop optimal policy optimal rule outcome output parameter performance period policy-maker positive possible precommitment private sector problem provides question rational expectations reason reduced regime relative renege reported reputation requires respect shocks simple rules solution stabilisation stochastic suggest supply sustainability Table time-consistent trajectories turn United values variables welfare loss