TY - JOUR AU - Canzoneri,Matthew B. AU - Cumby,Robert E. AU - Diba,Behzad T. TI - The Need for International Policy Coordination: What's Old, What's New, What's Yet to Come? JF - National Bureau of Economic Research Working Paper Series VL - No. 8765 PY - 2002 Y2 - February 2002 UR - http://www.nber.org/papers/w8765 L1 - http://www.nber.org/papers/w8765.pdf N1 - Author contact info: Matthew Canzoneri Department of Economics Georgetown University Washington, DC 20057 Tel: 202-687-5911 E-Mail: canzonem@georgetown.edu Robert E. Cumby Georgetown University School of Foreign Service Washington, DC 20057-1045 Tel: 202/687-2990 Fax: 202/687-6102 E-Mail: cumbyr@georgetown.edu Behzad Diba Department of Economics Georgetown University Washington, DC 20057 Tel: 202-687-5682 Fax: 202-687-6102 E-Mail: dibab@georgetown.edu AB - Fifty years ago, the Chicago School argued that flexible exchange rates would insulate employment from foreign economic disturbances: there is no need for policy coordination; flexible exchange rates suffice. Twenty five years later, the Bretton Woods system was gone, and the first generation of policy coordination models was introduced. Chicago School arguments not withstanding, these Old-Keynesian models provided a theoretical rational for policy coordination. Now, a new generation of policy coordination models is emerging. These New-Keynesian models incorporate optimizing households, monopolistic competition and nominal inertia. Here, we examine macroeconomic interdependence and the scope for policy coordination in a tractable second generation model that has received much recent attention. We relate our discussion to the old Chicago School arguments, to earlier analyses of first generation models, to recent empirical work on productivity, and to recent theoretical work on closed economy models. We conclude that second generation models may have more scope for policy coordination than did the first, and we identify the empirical work that is needed to give a serious answer to the question. ER -