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International Liquidity: A Welfare Analysis

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  • Michael Jones

Abstract

The paper addresses the effects of international liquidity conventions on the conduct and success of short-run income stabilization. Two interdependent and noncooperative nations attempt to minimize output variance subject to the international convention that adequate international reserve stocks be maintained. We demonstrate that the Nash outcome of nations which are bound by international reserve constraints is Pareto superior to the Nash outcome of unconstrained nations. With a formal model, we derive the set of Pareto-optimal liquidity conventions and explore the sensitivity of this set to the macroeconomic structural and stochastic characteristics of the nations and to the stabilization instruments that are employed.

Suggested Citation

  • Michael Jones, 1983. "International Liquidity: A Welfare Analysis," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 98(1), pages 1-23.
    • Handle: RePEc:oup:qjecon:v:98:y:1983:i:1:p:1-23.
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    File URL: http://hdl.handle.net/10.2307/1885564
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    Cited by:

    1. Turnovsky, Stephen J & Basar, Tamer & d'Orey, Vasco, 1988. "Dynamic Strategic Monetary Policies and Coordination in Interdependent Economies," American Economic Review, American Economic Association, vol. 78(3), pages 341-361, June.
    2. Chiţu, Livia, 2016. "Reserve accumulation, inflation and moral hazard: Evidence from a natural experiment," Working Paper Series 1880, European Central Bank.
    3. Daniels, Joseph, 1997. "Optimal sterilization policies in interdependent economies," Journal of Economics and Business, Elsevier, vol. 49(1), pages 43-60, February.
    4. Laskar Daniel, 1986. "Balance of payments constraint in a non cooperative world (the)," CEPREMAP Working Papers (Couverture Orange) 8606, CEPREMAP.
    5. Goknur Umutlu & Yilmaz Yildız, 2011. "The Effect of Global Liquidity on Macroeconomic Parameters," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 1(3), pages 167181-1671, September.
    6. Livia Chițu, 2021. "Reserve accumulation, inflation, and moral hazard: Evidence from a natural experiment," International Finance, Wiley Blackwell, vol. 24(2), pages 219-235, August.

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