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How to manage financial shocks: Intra-European vs. international monetary coordination

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  • Creel, Jerome
  • Capoen, Fabrice
  • Cussy, Pascal
  • Lenoble-Liaud, Helene

Abstract

Using a four-country Mundell–Fleming model including portfolio and wealth effects, we explore the question whether some types of policy coordination could improve the outcomes of a financial shock like the Asian crisis. Time-consistent equilibria are computed: a Nash equilibrium, a target zone regime and a coalition solution. The best equilibrium for all authorities except the US government is the European coalition. Introducing a Stability Pact in Europe does not alter this result. Introducing a Fed less conservative than the ECB or the BoJ provokes a change in US preferences: both authorities give priority to the target zone regime.
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  • Creel, Jerome & Capoen, Fabrice & Cussy, Pascal & Lenoble-Liaud, Helene, 2003. "How to manage financial shocks: Intra-European vs. international monetary coordination," Journal of Macroeconomics, Elsevier, vol. 25(4), pages 431-455, December.
    • Handle: RePEc:eee:jmacro:v:25:y:2003:i:4:p:431-455
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