NBER Working Papers by Carlo Carraro

This paper summarizes research presented at the FEEM-NBER Conference on the Behavioral and Distributional Effects of Environmental Policy, held in Milan Italy in June 1999.

This paper shows that international policy coordination is not counterproductive in a world where the incentive to run beggar-thy-neighbor policies internationally arises from the inefficiency that characterizes, within each country, the interaction between policymakers and private agents. The domestic inefficiency arises from the presence of nominal contracts that give central banks the power to affect real variables. In this setting we show that international cooperation belongs to central banks' dominant strategy. The paper is motivated by a common and misleading interpretation of a paper by Rogoff [1985], namely that international cooperation may be counterproductive in the presence of a domestic inefficiency.