Working Paper: NBER ID: w3044
Authors: Nouriel Roubini
Abstract: To assess the importance of economic interdependence and the potential gains from policy coordination in the European area, this paper analyzes the international transmission of policies and disturbances in a rational expectation dynamic general equilibrium simulation model of the work economy, and applies the analysis to the study of the European Monetary System. International spillover effects and potential gains from coordination appear to be small under the assumption of flexible exchange rates in the European area. The implications of a fixed rate EMS with German leadership are compared with those of a cooperative fixed exchange rate regime. Finally, capital controls under fixed rates fails to insure policy autonomy and insulation from external disturbances for the countries restricting the capital movements.
Keywords: European Monetary System; Economic Interdependence; Policy Coordination; Simulation Model
JEL Codes: E63; F33; F42
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| policy coordination (F42) | international spillover effects (F69) |
| leadership on cooperative outcomes (D70) | economic stability (E63) |
| capital controls under fixed rates (F33) | policy autonomy (H77) |