Coalition formation in international monetary policy games

This paper analyses coalition formation in monetary policy coordination games between n countries. We show that some but not all countries may join if the decision to be a member of the coalition is incentive-compatible for the individual country. Positive spillovers of the coalition formation process and the resulting free-rider problem limit the stable coalition size: since the coalition members are bound by the union’s discipline, an outsider can successfully export inflation without fearing that the insiders will try to do the same. These ‘gains from staying out’ arise even in the case of symmetric shocks.     

International monetary policy surprise spillovers

This is the first paper to examine international monetary surprise spillovers and to estimate the response of security prices to monetary and nonmonetary surprises. Monetary surprises have a slope effect on the domestic yield curve—short maturity yields adjust much more than longer maturity yields. These results are similar to other studies. The following results are new. US monetary surprises spill over and affect Australian yields and equity returns. Australian monetary surprises do not spill over to the US. Nonmonetary surprises are much more important than monetary policy surprises in explaining longer maturity yield changes and equity returns.     

Managed floating as a strategy to achieve selected monetary policy objectives

The paper considers the connection between exchange rate regimes and economic performance as measured by inflation, output growth, and their volatility. It is argued first that the choice of an intermediate exchange rate regime is complicated by potential conflicts with the requirements of central bank transparency and accountability. These are considered to be longer run questions. Next, three types of managed floating regimes are defined. A variety of counterfactual experiments are shown to illustrate that a managed float, such that the objective of monetary policy is expressed in terms of an inflation target, will produce the most desirable macroeconomic outcome. The counterfactuals are supplemented with estimates of forward-looking Taylor rules to ascertain whether such rules are informative under a managed floating scenario. In general, the answer is that central bank reaction functions become less useful when the exchange rate regime is an intermediate one.     

Varying monetary policy regimes: A vector autoregressive investigation

Recently, two stylized facts about the behavior of the U.S. economy have emerged: first, macroeconomic aggregates appear to be less volatile post-1984 than in the preceding 2 decades; second, monetary policy appears more responsive to inflationary pressures – and thereby more “stabilizing” – during the Volcker/Greenspan chairmanships relative to earlier regimes. Does a causal relationship exist between these two observations? In particular, has “better” policy by the Federal Reserve Board contributed significantly to the lessened volatility of the U.S. economy? This paper uses a structural vector autoregressive (VAR) specification to address these questions, examining the advantages and limitations of such an approach. In contrast with much of the existing research on these topics, I find that most of the quantitatively significant changes in volatility are attributed to breaks in the non-policy portion of the structural VAR, and not to the identified policy equation.     

Global monetary policy under a dollar standard

This paper derives an optimal monetary policy in a world with a dollar standard, defined as an environment in which all traded goods prices are set in US dollars, so that exchange rate pass-through into the US price level is zero. We show that the US is essentially indifferent to exchange rate volatility, while the rest of the world places a high weight on exchange rate volatility. In a Nash equilibrium of the monetary policy game, US preferences dominate; the equilibrium is identical to one where the US alone chooses world monetary policy. Despite this, we find surprisingly that the US loses from the dollar's role as an international currency, since the absence of exchange rate pass-through leads to inefficient expenditure allocations within the US. Finally, we derive the conditions for a dollar standard to exist.     

Optimal monetary and fiscal policy in a currency union

We lay out a tractable model for the analysis of optimal monetary and fiscal policy in a currency union. The monetary authority sets a common interest rate for the union, whereas fiscal policy is implemented at the country level, through the choice of government spending. In the presence of country-specific shocks and nominal rigidities, the policy mix that is optimal from the viewpoint of the union as a whole requires that inflation be stabilized at the union level by the common central bank, whereas fiscal policy has a country-specific stabilization role, one beyond the efficient provision of public goods.     

The necessity for a strategic approach to monetary policy

The Fed has a spotty track record, and its discretionary approach to conducting monetary policy will lead to the same mistakes it made in the past. I emphasize the importance of adopting a strategic framework for conducting monetary policy. The Fed has constantly changed the course of monetary policy in response to high-frequency data and other temporary factors. The Fed’s excessive monetary ease has distorted economic and financial behavior. The Fed should base its policy on longer-run objectives rather than short-run economic and financial fluctuations, and communicate these objectives to the public and to financial markets. Under the Financial Choice Act, the Fed would have to establish a strategic guideline, and explain to Congress why monetary policy may be deviating from the guideline. I respect the Fed and see the need for change to maintain its credibility. The Fed must acknowledge its shortfalls and modify its focus.     

Symbiosis of monetary and fiscal policies in a monetary union

We consider the interaction between the monetary policy in a monetary union, and the separate fiscal policies of the member countries. We use a Barro–Gordon-type model extended to many countries and fiscal policies. Each country’s fiscal policies inflict externalities on other countries, and the common monetary policy has its time-consistency problem. But if the two types of policymakers agree about the ideal levels of output and inflation, then this ideal is attained despite disagreements about the weights of the objectives, despite ex post monetary accommodation to fiscal profligacy, without fiscal coordination, without monetary commitment, and for any order of moves.     

A macroeconomics perspective on international coordination in sales taxes

This article investigates how international coordination vis-à-vis sales tax policies affects the welfare of participating countries. A country's tax policies have asymmetric effects on the pricing behaviors of domestic and overseas producers. International cooperation endogenizes the externality that improves the purchasing power of foreign residents, but at the cost of its own residents’ work efforts. The first-best taxes are lower than in the noncooperative case. When world welfare is utilitarian, smaller economies may experience welfare losses from cooperation under the weak income effect of sales tax. We propose a coordinated tax rule that all countries agree to employ.     

Firms' entry,monetary policy and the international business cycle

This paper proposes a two-country monetary model with firm entry as a means for alleviating the comovement puzzles in international business cycle models. It shows that business formation can generate fluctuations in output, employment, investment and trade flows close to those in the data while at the same time providing positive international comovements. Simulations show that the presence of imported investment goods is essential for replicating these facts.     

Current account balances and international economic policy coordination

The existing balances on the current accounts of the major industrialised countries have given rise to demands, addressed particularly to German economic policy-makers, which amount to a revitalisation of the “locomotive theory”. However, were the world economy once more to be “reflated” in accordance with the “locomotive theory”, there would be a danger that the improvements in stability which have been attained would be sacrificed without actually solving the pressing international economic problems.     

On the efficiency of monetary policy rules with flexible prices and rational expectations

The classic Sargent–Wallace–Lucas (SWL) rational expectations-flexible price model is usually interpreted as implying “policy ineffectiveness”: systematic monetary rules cannot affect the distribution of real output. A contrary but not widely-appreciated result of Dotsey and King suggests that there exist “prospective feedback” rules (future money depending systematically on current but as yet unobserved information) which improve output distribution by means of improving agents’ ability to perceive relative prices.We show the Dotsey–King proposition in fact to be a colossal understatement: prospective feedback rules applied vigorously enough (and even “contemporaneous feedback” rules based on current interest rates, provided at least one prospective feedback is active) can in the limit drive price-perception errors to zero. This is not to say such a policy would be desirable. Feedback parameter combinations that reduce current price level misperception tend to produce high forecast error variances with respect to future prices, with attendant loss in capital market efficiency. Whatever the desirable frontier among these different social cost-producing variables, feedback parameters will in general be needed in order to get on the frontier as well as to move along it. Monetary policy clearly produces social gain even in a version of this model which contains no elements of price “friction,” inefficient use of available information, or asymmetry in information as between the government and the public.     

Monetary and fiscal policy interactions in a micro-founded model of a monetary union

This paper analyzes in detail the mechanisms behind fiscal stabilization policy and the role of policy commitment in a micro-founded New-Keynesian model of a two-country monetary union, which is hit by supply shocks. We also explore the determinants of the gains from fiscal stabilization. While monetary policy with identical union members is concerned with stabilizing the union-wide economy, fiscal policy aims at stabilizing inflation differences and the terms of trade. Besides exploring optimal policies, we also consider monetary and fiscal rules. We study these rules both under coordination and non-coordination by the fiscal authorities.     

Configuration and coordination of international marketing activities

With this paper, we contribute to the literature of configuration and coordination in international firms. While previous literature emphasized that headquarters decide upon the configuration and coordination of their foreign subsidiaries, we suggest that the configuration–coordination decision takes place at the level of activities. With a focus on international marketing activities, our study on German firms from the automotive industry comes up with the following major findings: (1) With respect to configuration, firms tend to centralize the planning and the control of marketing activities, but to decentralize the implementation of marketing activities. (2) For the coordination of marketing activities, direct personal supervision and informal communication are preferred to other approaches, such as socialization or formal bureaucratic coordination. (3) When combining configuration and coordination of marketing activities, we identified distinct clusters. Firms that have a high decentralization of marketing activities and that use a high level of coordination yield better coordination results than firms from other configuration–coordination clusters.     

A monetary approach to measuring long-run inflationary expectations

In this paper, a model of long-term monetary equilibrium is used to construct an empirical model of long-run inflationary expectations. This model is estimated and used to construct out-of-sample estimates of long-run expected inflation. Comparisons of expectations measures from this model with those from commonly-used autoregressive models and with a model drawn from the term structure clearly favors the former.     

A dynamic monetary model with costly foreign currency

I present a dynamic general equilibrium monetary model with domestic and foreign currencies and a traded bond where there is an adjustment cost to switch into foreign currency. The focus is on the short versus long run trade-offs and transitional dynamics of domestic and foreign monetary disturbances as a function of attributes of currencies in utility. The main finding is that short and long run trade-offs and transitional dynamics together with the implied hysteresis property of the equilibrium are critical determinants of the qualitative results of domestic and foreign monetary disturbances in this class of model.     

A framework for international monetary reform?

The European Monetary System (EMS) has, so far, proved to be a success. The regional approach to the promotion of monetary stability, in terms of both more predictable exchange rates and a reduction in inflation, is the only option available to Europe as attempts to create a new international monetary system without an inflation bias and national initiatives to reduce inflation have failed. Can the EMS, building on its success, so evolve as to facllitate the reform of the international monetary system and the permanent reduction of inflation?     

Tariff retaliation versus financial compensation in the enforcement of international trade agreements

We analyze whether financial compensation is preferable to the WTO's current dispute settlement system that permits injured member countries to impose retaliatory tariffs. We show that, ex-post, monetary fines are more efficient than tariffs in terms of granting compensation to injured parties but fines suffer from an enforcement problem since they must be paid by the violating country. If fines must ultimately be supported by the threat of tariffs, they fail to yield a more cooperative outcome than the use of tariffs alone. Furthermore, the exchange of bonds between symmetric countries also does not improve enforcement relative to retaliatory tariffs.     

借鉴美国经验规范和发展我国货币市场基金

美国货币市场发达的主要原因在于可供交易的货币市场工具丰富,结构层次化、利率市场化,参与广泛等。我国货币市场规模小、品种单一,市场基础设施不完善,缺少相应的组织结构和制度保障,与美国货币市场化相去甚远。应借鉴美国的经验发展我国货币市场基金,加强货币市场基础设施建设,创新金融产品,加强货币市场基金风险管理,真正发挥货币市场基金作为现金管理工具的功能。