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How to Manage Financial Shocks: Intra-European vs. International Monetary Coordination

Author

Listed:
  • Jérôme Creel

    (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po)

  • Fabrice Capoen

    (CEPII - Centre d'Etudes Prospectives et d'Informations Internationales - Centre d'analyse stratégique)

  • Pascal Cussy

    (CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR - Université de Rennes - CNRS - Centre National de la Recherche Scientifique)

  • Hélène Lenoble-Liaud

    (LEDa - Laboratoire d'Economie de Dauphine - IRD - Institut de Recherche pour le Développement - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique)

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.

Suggested Citation

  • Jérôme Creel & Fabrice Capoen & Pascal Cussy & Hélène Lenoble-Liaud, 2003. "How to Manage Financial Shocks: Intra-European vs. International Monetary Coordination," Post-Print hal-03416786, HAL.
    • Handle: RePEc:hal:journl:hal-03416786
    DOI: 10.1016/j.jmacro.2003.07.002
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    References listed on IDEAS

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