Macroeconomic Policy Interaction Under Flexible Exchange Rates: A Two-Country Model
1983 (English)Report (Other academic)
This paper analyses macroeconomic policy interaction in a two.country flexible exchange rate model. Each country has a short-run non-vertical Phillips curve, and there is positive transmission of economic expansion through the terms of trade. The product real wage is distinguished from the income real wage, the latter also depending on the terms of trade, and a reduction in the former increasing employment. Inflation brings the actual income real wage below the target real wage. Non-co-coperative solutions (Nash and Stackelberg) are shown to have deflationary biases relative to Pareto-efficient outcomes which could be obtained by policy co-ordination. The special properties of the balanced expansion (constant terms of trade) path are explored. An important qualification to the whole analysis, taking into account intertemporal effects, is discussed at the end.
Place, publisher, year, edition, pages
Stockholm: IIES , 1983. , 36 p.
Seminar Paper / Institute for International Economic Studies, Stockholm University, ISSN 0347-8769 ; 264
IdentifiersURN: urn:nbn:se:su:diva-41228OAI: oai:DiVA.org:su-41228DiVA: diva2:329139
Published in connection with a visit at the IIES2010-07-082010-07-082010-07-09Bibliographically approved