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Dynamic Strategic Monetary Policies and Coordination in Interdependent Economies

Stephen J. Turnovsky, Tamer Basar, Vasco d'Orey

NBER Working Paper No. 2467 (Also Reprint No. r1063)
Issued in December 1987
NBER Program(s):International Trade and Investment Program, International Finance and Macroeconomics Program

This paper develops strategic monetary policies using a standard two-country macro model under flexible exchange rates. The equilibria considered include feedback Nash and feedback Stackelberg, both of which are compared to the Pareto optimal cooperative equilibrium. The optimal policies are obtained as feedback rules in which real money supplies are adjusted to movements in the real exchange rate. The properties of these policies and their welfare implications are analyzed using numerical simulations. The contrast in the present results with those obtained previously for a short-run horizon suggest the importance of both intertemporal and intratemporal tradeoffs in the determination of optimal strategic policies.

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Document Object Identifier (DOI): 10.3386/w2467

Published: From American Economic Review, Vol. 78, No. 3, pp. 341-361, (June 1988). citation courtesy of

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