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Discussion Paper Details

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Title: International Policy Cooperation and Model Uncertainty

Author(s): Gerald Holtham and Andrew Hughes Hallett

Publication Date: July 1987

Keyword(s): Bargaining, Coordination Policy Robustness, International Policy Cooperation and Model Uncertainty

Programme Area(s): International Macroeconomics

Abstract: The main obstacles to coordinating policies in practice are uncertainty about the correct model to use for policy design, and uncertainty about external variables. This paper examines the former problem. Numerical calculations using ten models from the recent Brookings Multicountry comparison exercise showed both policies and the gains to coordination are quite sensitive to model variations - and hence to model errors. A framework is therefore set up in which policy-makers are able to choose their model and their policies jointly in order to try and protect the gains from coordination from potential model misspecifications and/or disagreements over which model is most appropriate. That produces an alternative policy bargaining system and better results in terms of the success of coordination.

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Bibliographic Reference

Holtham, G and Hughes Hallett, A. 1987. 'International Policy Cooperation and Model Uncertainty'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=190