International Policy Coordination in a World with Model Uncertainty

32 Pages Posted: 15 Feb 2006

See all articles by Atish R. Ghosh

Atish R. Ghosh

International Monetary Fund (IMF) - Policy Development and Review Department

Paul R. Masson

International Monetary Fund (IMF) - Research Department; The Brookings Institution

Date Written: December 4, 1987

Abstract

This paper considers the design and desirability of rules for the international coordination of macroeconomic policies in a world characterized by model uncertainty. It is argued that the presence of model uncertainty, far from rendering cooperation unattractive, may actually provide a compelling incentive to coordinate policies, provided policymakers recognize that they cannot know the true model. In order to quantify the benefits from coordination, confidence regions are specified for the parameters in MINIMOD; it is assumed that policymakers in the United States and the rest of the world use these ranges as their subjective probability priors. It is shown that the expected value of gains from coordination of policies may be large, despite substantial uncertainty about the parameters.

JEL Classification: 0260, 4200

Suggested Citation

Ghosh, Atish R. and Masson, Paul R., International Policy Coordination in a World with Model Uncertainty (December 4, 1987). IMF Working Paper No. 87/81, Available at SSRN: https://ssrn.com/abstract=885003

Atish R. Ghosh (Contact Author)

International Monetary Fund (IMF) - Policy Development and Review Department ( email )

700 19th St. NW
Washington, DC 20431
United States

Paul R. Masson

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

The Brookings Institution ( email )

1775 Massachusetts Ave. NW
Washington, DC 20036-2188
United States
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