RDP 8705: The Economics of International Policy Coordination 4. Conclusion

This paper has surveyed many of the results found in the theoretical analyses of policy coordination using standard macroeconomic models of open economies. It is argued that under certain conditions policy coordination need not be welfare improving. Whether or not policy coordination is welfare improving depends crucially on the magnitudes and signs of the transmission of policies between countries. These are empirical issues which deserve greater research effort. There have only been a few direct empirical attempts to address the issues of policy coordination.

The application of game theory to the issue of international policy coordination has provided important insights into the problems of coordination. Two lines of research are needed to follow from the work already produced. The first is to incorporate uncertainty into the theoretical models. The second is to apply the game theory techniques to carefully constructed empirical models of the world economy to test the implications of alternative proposals for the world monetary system. An initial attempt at this has been undertaken by KcKibbin and Sachs (1986b).