Autonomy and the Choice of Policy in Asymmetrically Dependent Economies: An Investigation of the Gains from International Policy Co-ordination

This paper examines whether decentralized control of the world e conomy effectively limits our ability to steer individual economies. It is well known that noncooperative policies are Pareto inefficient;but there is, as yet, no empirical evidence on the costs of uncoordinated policies or the potential g ains and risks in cooperation. In contrast to recent theoretical work in the are a, this paper uses an estimated multicountry model in a dynamic game framework t o estimate those costs and benefits. Policy design depends crucially on the asym metries between economies. Successful coordination depends on anticipation and o n timing the fiscal and monetary policy impacts correctly. Copyright 1986 by Royal Economic Society.