Monetary policy in interdependent economies: A game theoretic approach Matthew B. Canzoneri and Dale W. Henderson MIT Press, 1991, 133 pp.

This article reviews the recent book by Matthew Canzoneri and Dale Henderson on international monetary policy. The review discusses the basic model used by the authors to illustrate the welfare losses that arise as a result of non-cooperative behavior and the proposed solutions for moving closer to the socially optimal cooperative solutions. The proposed solutions are then examined in detail and the reviewer asks whether these solutions accurately describe the way he believes cooperation has occurred in the last two decades. Finally, this work is compared to recent research on policy cooperation that does not have game-theoretic foundations.     

The case for rules in the conduct of monetary policy: A critique on a paper by B.T. McCallum

Conclusion Certainly these last comments lead to the question what should be targeted: the growth rate [as for example in Gordon’s 1985 work] or the level as in Hall [1983] or McCallum [1988] or no targeting at all [like in Friedman 1960; 1968; 1985] or Meltzer [1984; 1987]. Since targeting GNP growth rates might lead to instability and overshooting effects as Taylor [1985] points out, altering rule (1) in that way is not appropriate. But targeting on the levels may not reduce fluctuations in growth rates or prevent cycles at all. If the latter are, however, more important in public opinion, a policy problem emerges. To summarize the last comment in a figurative way: McCallum’s rule prevents inflation in the long run and may prevent fluctuations in terms of half a Kondratieff cycle, but it preserves and intensifies Juglar and shorter cycles.