Two-Country Models of Monetary and Fiscal Policy: What Have We Learned? What More Can We Learn?

This paper surveys the literature that uses two-country models to analyze monetary and fiscal policy issues faced in interdependent economies. We discuss sources of structural interdependence that researchers typically include in these models. We describe many of the types of policy interactions that researchers have considered and summarize the key results that they have obtained. Finally, we briefly explain the limitations of two-country models and outline directions that this literature might usefully be extended

Optimal Sterilization Policies in Interdependent Economies

In this paper, a two-country leader-follower model with imperfect asset substitution is used to derive the optimal sterilization coefficients for two-country flexible and fixed exchange rate regimes. It is found that, in general, incomplete sterilization is optimal. However, both the origin and the type of macroeconomic shocks the economies experience are important in determining the appropriate degree of sterilization. We also find that sterilization policies have spill-over effects (strategic complements) in both cases. Thus, in a competitive policy-making environment, greater sterilization by one country leads to greater sterilization by the other country. Further, the impact of increasing capital market integration is examined in particular. We show that greater integration compounds this problem, leading to full sterilization as the optimal outcome under perfect capital mobility

The Significance of the Economic Summits

It is argued here that the summits should not be transformed or elevated to some system of global economic governance. Rather, global economic stability depends on good domestic economic policymaking and, thus, the economic summits cannot substitute for effective and effcient policymaking within sovereign nations. The summits, therefore, should be seen first and foremost as a means for improving and generating better domestic policies via cooperation as opposed to delivering packages of coordinated policies. By focusing on international economic policy cooperation, the summits can contribute much to improving domestic economic policymaking. The protest at the Genoa summit and the events of September 11 provide a well-timed opportunity to rethink the format of the summits, to streamline the process, and to return to the European or Rambouillet model of summitry. Perhaps this is the path the summits are on following the “secluded and intimate” 2002 summit in Kananaskis (Bayne, 2002). The world was a very uncertain place in 1975. There were oil shocks, an unsettled foreign-exchange system, and a global recession. The original summit was formed to deal with these uncertainties. The world is again an uncertain place, with financial crises, the emergence of Russia and China as political and economic forces, terrorist attacks on the United States, an economic downturn among the advanced economies, and turbulence in the world’s equity markets. The annual summits remain as a significant forum for sharing information and reducing this uncertainty

Religious Affiliation and Individual International-Policy Preferences in the United States

Empirical examination of individual-level survey data on national identity, in general, reveals a significant relationship between religious affiliation and an individual’s international-policy preferences and that this relationship varies across Protestant denominations. Specifically, we test attitudes toward import and immigration policies, the role of international institutions, and unilateral policy actions. The empirical results indicate that individuals affiliated with conservative Protestant denominations are more likely to support positions on international issues that can be regarded as consistent with the anti-globalist right. We also find evidence of a reinforcing regional effect among conservatives in the south, and differences in the preferences of Baptist and non-Baptist African Americans