Rules, Reputation and Macroeconomic Policy Coordination

In this book David Currie and Paul Levine address a broad range of issues concerning the design and conduct of macroeconomic policy in open economies. Adopting neo-Keynesian models for which monetary and fiscal policy have short-term real effects, they analyse active stabilisation policies in both a single and multi-country context. Questions addressed include: the merits of simple policy rules, policy design in the face of uncertainty, and international policy coordination. A central feature of the book is the treatment of credibility and the effect of a policymaker’s reputation for sticking to announced policies. These considerations are integrated with coordination issues to produce a unique synthesis. The volume develops optimal control methods and dynamic game theory to handle relationships between governments and a conscious rational private sector, and produces a unified, coherent approach to the subject.