NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Katharine A. Rockett

University of Essex
Department of Economics

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NBER Working Papers and Publications

October 1986International Macroeconomic Policy Coordination When Policy-Makers Disagree on the Model
with Jeffrey A. Frankel: w2059
The existing literature on international macroeconomic policy coordination makes the unrealistic assumption that policy-makers all know the true model, from which it follows in general that the Nash bargaining solution is superior to the Nash non-cooperative solution. But everything changes once we recognize that policy-makers' models differ from each other and therefore from the "true" model. It is still true that the two countries will in general be able to agree on a cooperative policy package that each believes will improve the objective function relative to the Nash non-cooperative solution. However, the bargaining solution is as likely to move the target variables in the wrong direction as in the right direction, in the light of a third true model. This paper illustrates these theore...

Published:

  • Translated into Spanish in Instituto de Estudios Fiscales, Madrid: Hacienda Publica Espanola.
  • Frankel, Jeffrey A. and Katharine Rockett. "International Macroeconomic Policy Coordination When Policymakers Do Not Agree on the True Model." From The American Economic Review, Vol. 78, No. 3, pp. 318-340, (June 1988).

 
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