This paper argues that a wealth target is an important feature of an economic policy package. A real exchange rate target can be used as an intermediate target to steer national wealth towards its desired value. Such a policy requires that fiscal policy be used to restrain inflation. This may be...

Exchange rate behavior is analyzed in the context of a stochastic rational expectations model in which there are random shocks to the price setting mechanism and in which the authorities choose to impose either nominal or real exchange rate bands. Results are compared to those that emerge from a...

The paper investigates four challenges to exchange rate stability in the coming years and explores their implications for macroeconomic and exchange rate policy. The first section explores the importance of seigniorage in financing the government budget in Southern European countries. The second...

We analyze a two-country zone facing a joint inflationary shock and responding with coordinated and uncoordinated monetary and fiscal policies. We show that the standard presumption that the absence of coordination results in an excessive exchange rate appreciation of the zone with respect to...

This paper discusses the EMS and proposals to move towards EMU in the context of recent theoretical and empirical work on international policy coordination. It treats two particular themes: asymmetry among EMS countries and its implications for policy coordination; and the coordination required...

In this paper I examine issues of optimal stabilization in two types of world economy, a competitive one where all countries are small, and one where there is a Stackelberg leader. The focus is on the 1985 target zones proposal of Williamson, according to which there should be a periodic fixing...

Following the fiscal stabilisation of 1926 and the accompanying return of the French franc to the Gold Standard, France enjoyed several years of fast growth and remained immune to the effects of the Great Depression until early 1931. Accounts of this period emphasize the undervaluation of the...

The paper evaluates some proposals for macroeconomic stabilization in an open economy, which take the form of simple rules. The first rule assigns monetary policy to inflation control and does not require fiscal intervention. The second rule adds fiscal control of a foreign wealth target to the...

An adverse supply shock hits a two-country Mundell-Fleming world and causes unemployment and a higher cost of living. The optimal fiscal policies under noncooperative and under international policy coordination are then contrasted under three alternative regimes: floating exchange rates with...

As a companion to a previous paper, monetary and fiscal policy are analyzed in (a) a small open economy and (b) a two-country world, where in addition to a fixed wage causing unemployment, countries now produce specialized products whose prices are fixed, causing excess supply. There are two...