Working Paper: NBER ID: w1746
Authors: Willem H. Buiter
Abstract: The paper uses a small analytical two-region (the United States and the Rest of the Industrial World) model, to analyze three issues Concerning international economic interdependence and macroeconomic policy coordination that have been raised in connection with the September1985 World Economic Outlook published by the IMF.They are: (1) What should bethe monetary and/or fiscal response in the Rest of the Industrial World to a tightening of U.S. fiscal Policy and what should be the U.S. monetary response? (2) What Should be the monetary and/or fiscal response in the United States and in the Rest of the Industrial World to a"Collapse of the U.S. dollar?" The paper highlights the importance of determining the causes of such a "hard landing" for the U.S.dollar, as the appropriate policy responses are very sensitive to this; (3) What should be the macroeconomic policy response in the Industrial World to a disappointing real growth performance? Again the correct identification of the reason(s) for the disappointmentis shown to be crucial.The final Section discusses and qualifies the activist policy conclusions derived from the formal analysis.
Keywords: international economic interdependence; macroeconomic policy coordination
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| US fiscal policy tightening (E62) | US competitiveness (F23) |
| US fiscal policy tightening (E62) | real interest rates in the US (E43) |
| US fiscal policy tightening (E62) | real interest rates in the ROW (E43) |
| US fiscal policy tightening (E62) | global real money stock (E49) |
| collapse of the US dollar (F31) | fiscal and monetary responses (E63) |
| disappointing real growth performance in the industrial world (O14) | macroeconomic policy response (E60) |