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Dynamic Strategic Monetary Policies and Coordination in Interdependent Economies

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  • Stephen J. Turnovsky
  • Tamer Basar
  • Vasco d'Orey

Abstract

This paper develops strategic monetary policies using a standard two-country macro model under flexible exchange rates. The equilibria considered include feedback Nash and feedback Stackelberg, both of which are compared to the Pareto optimal cooperative equilibrium. The optimal policies are obtained as feedback rules in which real money supplies are adjusted to movements in the real exchange rate. The properties of these policies and their welfare implications are analyzed using numerical simulations. The contrast in the present results with those obtained previously for a short-run horizon suggest the importance of both intertemporal and intratemporal tradeoffs in the determination of optimal strategic policies.

Suggested Citation

  • Stephen J. Turnovsky & Tamer Basar & Vasco d'Orey, 1987. "Dynamic Strategic Monetary Policies and Coordination in Interdependent Economies," NBER Working Papers 2467, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:2467
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    References listed on IDEAS

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    1. Buiter,Willem H. & Marston,Richard C., 1986. "International Economic Policy Coordination," Cambridge Books, Cambridge University Press, number 9780521337809.
    2. Peter J. Stemp & Stephen J. Turnovsky, 1986. "Optimal Monetary Policy in an Open Economy," NBER Working Papers 2018, National Bureau of Economic Research, Inc.
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    15. repec:bla:econom:v:53:y:1986:i:210:p:139-57 is not listed on IDEAS
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