IDEAS home Printed from https://ideas.repec.org/p/tiu/tiutis/9070d8b2-ce02-48e1-880d-4ae588760a50.html
   My bibliography  Save this paper

Capital accumulation, inflation and long-run conflict in international objectives

Author

Listed:
  • van der Ploeg, F.

    (Tilburg University, School of Economics and Management)

Abstract

It is shown that, when there is a genuine long-run trade-off between inflation and output, coordination under pre-commitment yields substantial improvements in economic welfare. The analysis is conducted within the context of a two-country model with capital accumulation, immobile labour, perfect capital mobility and floating exchange rates. If the home government increases its monetary growth rate, it increases home inflation, reduces the world real interest rate and therefore boosts both home and foreign capital accumulation. The foreign country thus enjoys a gain in output without suffering from higher inflation. Competitive policies lead to monetary policies which are too tight and levels of activity which are too low, since each country attempts to be a "free rider". Coordination leads to a lower world real interest rate and higher welfare. Pre-commitment is necessary, for the success of coordinated policies, however. Otherwise each government has an incentive to renege and levy a "surprise" inflation tax. In the absence of binding contracts or reputation effects, both cooperation and competitive policy formulation lead to excessive monetary growth rates and higher levels of activity than under coordination or competition with pre-commitment. Coordination can be futile, since it exacerbates the lack of credibility perceived by the private sectors.
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)
(This abstract was bo
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • van der Ploeg, F., 1989. "Capital accumulation, inflation and long-run conflict in international objectives," Other publications TiSEM 9070d8b2-ce02-48e1-880d-4, Tilburg University, School of Economics and Management.
    • Handle: RePEc:tiu:tiutis:9070d8b2-ce02-48e1-880d-4ae588760a50
    as

    Download full text from publisher

    File URL: https://pure.uvt.nl/ws/portalfiles/portal/1147879/FP5620391.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Buiter,Willem H. & Marston,Richard C., 1986. "International Economic Policy Coordination," Cambridge Books, Cambridge University Press, number 9780521337809, November.
    2. Willem H. Buiter & Richard C. Marston, 1985. "Introduction to "International Economic Policy Coordination"," NBER Chapters, in: International Economic Policy Coordination, pages 1-7, National Bureau of Economic Research, Inc.
    3. Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec..
    4. Calvo, Guillermo A, 1978. "On the Time Consistency of Optimal Policy in a Monetary Economy," Econometrica, Econometric Society, vol. 46(6), pages 1411-1428, November.
    5. Aizenman, Joshua & Frenkel, Jacob A, 1985. "Optimal Wage Indexation, Foreign Exchange Intervention, and Monetary Policy," American Economic Review, American Economic Association, vol. 75(3), pages 402-423, June.
    6. Carraro, Carlo & Giavazzi, Francesco, 1988. "Can International Policy Coordination Really Be Counterproductive?," CEPR Discussion Papers 258, C.E.P.R. Discussion Papers.
    7. Stanley Fischer & Franco Modigliani, 1978. "Towards an understanding of the real effects and costs of inflation," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 114(4), pages 810-833, December.
    8. Marini, Giancarlo & van der Ploeg, Frederick, 1988. "Monetary and Fiscal Policy in an Optimising Model with Capital Accumulation and Finite Lives," Economic Journal, Royal Economic Society, vol. 98(392), pages 772-786, September.
    9. Buiter, Willem H, 1981. "The Superiority of Contingent Rules over Fixed Rules in Models with Rational Expectations," Economic Journal, Royal Economic Society, vol. 91(363), pages 647-670, September.
    10. repec:nbr:nberre:0126 is not listed on IDEAS
    11. Gilles Oudiz & Jeffrey Sachs, 1985. "International Policy Coordination in Dynamic Macroeconomic Models," NBER Chapters, in: International Economic Policy Coordination, pages 274-330, National Bureau of Economic Research, Inc.
    12. Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 1-23, February.
    13. Marcus Miller & Mark Salmon, 1985. "Policy Coordination and Dynamic Games," NBER Chapters, in: International Economic Policy Coordination, pages 184-227, National Bureau of Economic Research, Inc.
    14. Dornbusch, Rudiger & Fischer, Stanley, 1980. "Exchange Rates and the Current Account," American Economic Review, American Economic Association, vol. 70(5), pages 960-971, December.
    15. David K. H. Begg, 1980. "Rational Expectations and the Non-neutrality of Systematic Monetary Policy," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 47(2), pages 293-303.
    16. David Currie & Paul Levine, 1985. "Macroeconomic Policy Design in an Interdependent World," NBER Chapters, in: International Economic Policy Coordination, pages 228-273, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Nijman, Theo & Verbeek, Marno & van Soest, Arthur, 1991. "The efficiency of rotating-panel designs in an analysis-of-variance model," Journal of Econometrics, Elsevier, vol. 49(3), pages 373-399, September.
    2. van der Ploeg, F., 1991. "Macroeconomic policy coordination issues during the various phases of economic and monetary integration in Europe," Other publications TiSEM a976728b-0f0f-44c5-bb3d-4, Tilburg University, School of Economics and Management.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. van der Ploeg, F., 1988. "Monetary and fiscal policy in interdependent economies with capital accumulation, death and population growth," Other publications TiSEM 0f2e8d07-235f-4801-8a3b-5, Tilburg University, School of Economics and Management.
    2. van der Ploeg, Frederick, 1993. "Channels of international policy transmission," Journal of International Economics, Elsevier, vol. 34(3-4), pages 245-267, May.
    3. F. Van der Ploeg, 1992. "Coordinación de políticas macroeconómicas en las diferentes etapas de la integración económica y monetaria en Europa," EKONOMIAZ. Revista vasca de Economía, Gobierno Vasco / Eusko Jaurlaritza / Basque Government, vol. 24(03), pages 240-286.
    4. Stephen J. Turnovsky, 2011. "Stabilization Theory and Policy: 50 Years after the Phillips Curve," Economica, London School of Economics and Political Science, vol. 78(309), pages 67-88, January.
    5. Jean-Bernard Chatelain & Kirsten Ralf, 2020. "How macroeconomists lost control of stabilization policy: towards dark ages," The European Journal of the History of Economic Thought, Taylor & Francis Journals, vol. 27(6), pages 938-982, November.
    6. van der Ploeg, F., 1989. "Monetary disinflation, fiscal expansion and the current account in an interdependent world," Other publications TiSEM 484a8e4e-6115-46fb-9a60-b, Tilburg University, School of Economics and Management.
    7. Van Der Ploeg, F., 1990. "Macroeconomic Policy Coordination During The Various Phases Of Economic And Monetary Integration In Europe," Papers 9061, Tilburg - Center for Economic Research.
    8. Jensen, Henrik, 1996. "The advantage of international fiscal cooperation under alternative monetary regimes," European Journal of Political Economy, Elsevier, vol. 12(3), pages 485-504, November.
    9. Peter Mooslechner & Martin Schuerz, 1999. "International Macroeconomic Policy Coordination: Any Lessons for EMU? A Selective Survey of the Literature," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 26(3), pages 171-199, September.
    10. repec:hal:spmain:info:hdl:2441/5221 is not listed on IDEAS
    11. Alogoskoufis, G.S. & van der Ploeg, F., 1991. "Money and growth revisited," Discussion Paper 1991-9, Tilburg University, Center for Economic Research.
    12. repec:spo:wpmain:info:hdl:2441/5221 is not listed on IDEAS
    13. Willem H. Buiter, 2003. "James Tobin: An Appreciation of his Contribution to Economics," Economic Journal, Royal Economic Society, vol. 113(491), pages 585-631, November.
    14. Stephen J. Turnovsky, 1985. "Monetary and Fiscal Policy Under Perfect Foresight: A Symmetric Two Country Analysis," NBER Working Papers 1699, National Bureau of Economic Research, Inc.
    15. Dennis, Richard, 2004. "Solving for optimal simple rules in rational expectations models," Journal of Economic Dynamics and Control, Elsevier, vol. 28(8), pages 1635-1660, June.
    16. Alan Sutherland, 2002. "International monetary policy coordination and financial market integration," International Finance Discussion Papers 751, Board of Governors of the Federal Reserve System (U.S.).
    17. Kollintzas, Tryphon & Philippopoulos, Apostolis & Vassilatos, Vanghelis, 1999. "Normative Aspects of Fiscal Policy in an Economic Union: a Review," CEPR Discussion Papers 2212, C.E.P.R. Discussion Papers.
    18. Frenkel, Jacob A. & Mussa, Michael L., 1985. "Asset markets, exchange rates and the balance of payments," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 2, chapter 14, pages 679-747, Elsevier.
    19. Jacob A. Frenkel & Morris Goldstein & Paul R. Masson, 2017. "The Rationale for, and Effects of, International Economic Policy Coordination," World Scientific Book Chapters, in: TRADE CURRENCIES AND FINANCE, chapter 7, pages 241-298, World Scientific Publishing Co. Pte. Ltd..
    20. WARWICK J. McKIBBIN, 1988. "The Economics of International Policy Coordination," The Economic Record, The Economic Society of Australia, vol. 64(4), pages 241-253, December.
    21. Turnovsky, Stephen J., 1988. "The gains from fiscal cooperation in the two-commodity real trade model," Journal of International Economics, Elsevier, vol. 25(1-2), pages 111-127, August.
    22. van der Ploeg, F., 1989. "Monetary interdependence under alternative exchange-rate regimes," Discussion Paper 1989-20, Tilburg University, Center for Economic Research.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:tiu:tiutis:9070d8b2-ce02-48e1-880d-4ae588760a50. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Richard Broekman (email available below). General contact details of provider: https://www.tilburguniversity.edu/about/schools/economics-and-management/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.