International Macroeconomics

On 25 November 1983 the Research Programme in International Macroeconomics of the CEPR organised a one-day workshop on Recent Developments in International Macroeconomics. The meeting was held in the Henry Price Room of Chatham House and chaired by Willem Buiter. There were just over 30 participants, all UK- based or visiting the UK for the current academic year. Five were from government departments and the Bank of England, the remainder from the universities.

The main themes were two related technical, yet very practical issues: how to model international economic interdependence; and how to approach, at both normative and positive levels, the issue of policy design in a decentralised, interdependent world economy.

Four papers were discussed. Marcus Miller and Mark Salmon presented their work on "Dynamic games and the time inconsistency of optimal policy in open economies". They model decentralised decision-making as a dynamic game. The credibility of future policy announcements and precommitment by the authorities were shown to be central issues. The methods presented were computational, i.e., oriented towards applications. David Currie and Paul Levine spoke on their work on "Simple rules and interdependent policy". This simplified the issue of decentralised policy design by restricting the class of policies under consideration to constant linear feedback rules. Again the methods can be and have been used for numerical simulations of applications-oriented small macroeconomic models.

David Barr gave his paper, "The determinants of exchange rate behaviour: an econometric list of the overshooting model." This reported estimates of a small model of real exchange rate "overshooting" in response to nominal disturbances. The model, originally developed by Dornbusch, was not rejected by the data in an extensive set of tests.

The final paper was presented by Patrick Minford, on "Strategies for multi-country modelling: A New Classical Approach". Two versions of a two-country (USA - Europe) "world" model were presented and used to evaluate the consequences of monetary and budgetary shocks. The model exhibited a very high degree of financial "crowding out" and a strong response of output to US monetary shocks.

There was also a general discussion of future activities of the CEPR International Macroeconomics programme. The non-academic participants stressed the importance of swift and readable dissemination of relevant research results to those who practice economics outside institutes of higher learning. The Centre should perform an educational role, with seminars and briefings for civil servants and other interested parties. The Centre was considered an ideal locus for putting together teams for cooperative research projects and fund-raising. There also might be scope for developing the ability to do contract work.

Several topics attracted especially wide interest as potential fields for research in the International Macroeconomics programme:

- international interdependence and policy coordination, including the application of game theory to policy making in the international economy;

- a comparative perspective on the principles and practice of public sector investment;

- a policy-oriented historical comparison, across countries, of the experience of the 1920s-30s with that of the 1970s- 80s;

- applied financial modelling of the UK economy;

- North-South aspects of international interdependence.