Policy Interdependence: Does Strategic Behaviour Pay? An Empirical Investigation Using the Liverpool World Model
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Theory suggests that the interdependence of national economies leads to externalities in policy-making and inefficient outcomes among decentralised, noncooperative players. In principle, co-operation can make all parties better off.1 And indeed, we see policy-makers from different countries meeting with each other frequently within the structures of the Organization for Economic Co-operation and Development (OECD), the International Monetary Fund (IMF), the Bank of International Settlements (BIS), and the European Economic Community (EEC). Are they internalising the externalities of policymaking and producing efficient adjustments to the macroeconomic shocks that buffet the world economy?
KeywordsMonetary Policy Real Exchange Rate Real Wage Real Interest Rate European Economic Community
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