NBER Working Papers by Paul Masson

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Working Papers

September 1993Credibility of Policies versus Credibility of Policymakers
with Allan Drazen: w4448
Standard models of policy credibility. defined as the expectation that an announced policy will be carried out. emphasize the preferences of the policymaker (his "type") and the role of policies in signaling type. Whether a policy is carried out. however. should also reflect the state of the economy. so that even a "tough" policymaker may renege on an announced policy in adverse circumstances. We investigate this alternative notion of credibility, using an "escape clause" model of devaluation. in which a policymaker maintains a fixed parity in good times, but devalues if the unemployment rate gets too high. Our main conclusion is that if there is persistence in the process driving unemployment, following a tough policy in a given period may lower rather than raise the credibility of a no-d...

Published: Quarterly Journal of Economics, vol.109, no.3, August 1994. citation courtesy of

April 1989Simulating the Effects of Some Simple Coordinated versus Uncoordinated Policy
with Jacob A. Frenkel, Morris Goldstein: w2929
Effects of different policy rules are simulated: uncoordinated targeting of the money supply or nominal income, use of monetary policy to achieve coordinated targets for nominal or real exchange rates, and the use of monetary and fiscal policies to hit targets for internal and external balance. The following conclusions emerge: rules which performed best for some shocks performed poorly for others; monetary policy was ineffective in limiting movements in real exchange rates; unconstrained use of fiscal policy was quite powerful in influencing real variables; and dynamic instability was a potentially serious problem. Robustness to different specifications and to constraints on instruments remains to be examined.

Published: Bryant, Ralph C., et al. (eds.) Macroeconomic policies in an interdependent world. Washington, D.C.: International Monetary Fund; Washington, D.C.: Brookings Institution; London: Centre for Economic Policy Research, 1989.

July 1988International Coordination of Economic Policies: Scope, Methods, and Effects
with Jacob A. Frenkel, Morris Goldstein: w2670
This paper discusses the scope, methods, the effects of international coordination of economic policies. In addressing the scope for and of coordination, the analysis covers the rationale for coordination, barriers to coordination, the range and specificity of policies to be coordinated, the frequency of coordination, and the size of the coordinating group. Turning to the methods of coordination, the emphasis is on the broad issues of rules versus discretion, single-indicator versus multi-indicator approaches, and hegemonic versus more symmetric systems. In an attempt to shed some light on the effects of alternative rule- based proposals for coordination, we present some simulations of a global macroeconomic model (MULTIMQD) developed in the International Monetary Fund. The simulations con...

Published: Frenkel, Goldstein, and Masson. "International Coordination of Economic Policies: Scope, Methods, and Effects," from Economic Policy Coordination, Washington, DC: IMF, 1988.

August 1979Exchange Rates and Portfolio Balance
with John R. Martin: w0377
An open economy portfolio balance model, describing allocation among money, a domestic bond, and a traded foreign currency bond is developed for a world of many countries. A special role is attributed to the dollar, namely that all internationally traded bonds are denominated in that currency. It is shown that in the short run with real variables exogenous and expectations static, stability requires that all countries except the U.S. be net creditors in dollar-denominated bonds. What data are available on inter-country claims suggest that some countries may well be net debtors abroad in foreign currency. In particular, if one excludes direct investment claims, private claims on the rest of the world by Japan and Canada have been negative over the period of floating rates since 1973. Howeve...

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