International Monetary Policy Coordination An Evaluation of Cooperative Strategies using a large Econometric Model

Given the increase in world economic integration we wish to examine whether there is a case for coordinating monetary policy across some of the major economies. In late 1998 and early 1999, US monetary policy responded to global economic conditions and interest rates were cut in response to the crisis in Asia. But Europe could have also played an important role in helping to boost world demand given a serious economic downturn. We undertake stochastic simulations on the National Institute’s World econometric model, NiGEM, in order to evaluate independently set monetary policy where domestic considerations remain the prime objective and a coordinated policy where domestic interest rates react to conditions outside the national border.