In this paper the Maximum Principle is used to derive optimal policies for linear-quadratic, continuous-time economic systems where there may be more than one policy-maker and where the private sector may have rational expectations. The analogy between solving full-information differential games...

In a continuous time model of two symmetric open economies, with a floating exchange rate, we find that the pay-off to the policy coordination depends systematically on the heterogeneity of their inflation experience. While monetary policy coordination improves welfare when there is a common...