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How to manage financial shocks: Intra-European vs. international monetary coordination

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 regim...

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Published in:	Journal of macroeconomics 2003-12, Vol.25 (4), p.431-455
Main Authors:	Creel, Jérôme, Capoen, Fabrice, Cussy, Pascal, Lenoble-Liaud, Hélène
Format:	Article
Language:	English
Subjects:	Coordination Economic crisis Economic models Economics and Finance Equilibrium Europe Financial crisis Humanities and Social Sciences International Macroeconomics Monetarism Monetary policy Stability Pact Studies Target zone Time Time consistency U.S.A
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description	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.
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subjects	Coordination Economic crisis Economic models Economics and Finance Equilibrium Europe Financial crisis Humanities and Social Sciences International Macroeconomics Monetarism Monetary policy Stability Pact Studies Target zone Time Time consistency U.S.A
title	How to manage financial shocks: Intra-European vs. international monetary coordination
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