International Spillovers and Guidelines for Policy Cooperation by Anton Korinek

32 Pages·2014·0.21 MB·English

International Spillovers and
Guidelines for Policy Cooperation1
Anton Korinek
JohnsHopkinsUniversityandNBER
Presentation at the
IMF 15th Jacques Polak Annual Research Conference
November 2014
1
FinancialsupportfromtheIMFResearchFellowshipandINET/CIGIaregratefullyacknowledged.
AntonKorinek (JHU) SpilloversandPolicyCooperation IMFARC2014 1/26
Motivation
In a globalized world, national economic policies frequently
create international spillover effects
Examples: capital flow management, exchange rate stabilization,
quantitative easing, devaluation policies, etc.
→ concerns about “global currency wars”
Main Questions
When are spillovers from national economic policymaking
inefficient?
Which global “rules of the road” guarantee efficient outcomes?
AntonKorinek (JHU) SpilloversandPolicyCooperation IMFARC2014 2/26
Main Contribution
Key Contribution 1: Develop an efficient benchmark:
Spillover effects of unilateral policymaking are efficient as long as:
1 policymakers act competitively
2 policymakers have complete external instruments
3 no imperfections in international market
→ Examples of efficient unilateral intervention:
currentaccountmanagementinaliquiditytrap
exchangerateinterventiontoinsurethetradablesector
reserveaccumulationtointernalizelearningexternalities
all these policies generate efficient spillovers
AntonKorinek (JHU) SpilloversandPolicyCooperation IMFARC2014 3/26
Main Contribution
Key Contribution 2: Provide guidelines for cooperation
Role for cooperation is limited to deviations from benchmark:
1 ensuring competitive behavior
2 dealing with incomplete/imperfect policy instruments
createnew/betterinstruments
useexistinginstrumentsmoreefficiently
3 addressing imperfections in international markets
correctmarketimperfections
useexistingmarketsmoreefficiently
AntonKorinek (JHU) SpilloversandPolicyCooperation IMFARC2014 4/26
Setup of Baseline Model
Countries i = 1,...N of mass ωi with (cid:80) ωi = 1
i
Policymaker and unit mass of domestic agents obtain utility
Ui(xi) s.t. fi(xi,Xi,mi,Mi,ζi,Zi) ≤ 0
Q
·mi ≤ Ti
1−τi
xi,Xi ... bundleofdomesticvariables
mi,Mi ... bundleofinternationaltransactions
(upper-casevariablesdenotecountryaggregates)
ζi ... bundleofdomesticpolicies
Zi ... bundleofexogenousparameters
Q ... vectorofworldmarketpricesofmi,Mi
τi isfullsetoftaxinstrumentsonintltransactionsrebatedviaTi
AntonKorinek (JHU) SpilloversandPolicyCooperation IMFARC2014 5/26
Setup of Baseline Model
Countries i = 1,...N of mass ωi with (cid:80) ωi = 1
i
Policymaker and unit mass of domestic agents obtain utility
Ui(xi) s.t. fi(xi,Xi,mi,Mi,ζi,Zi) ≤ 0
Q
·mi ≤ Ti
1−τi
xi,Xi ... bundleofdomesticvariables
mi,Mi ... bundleofinternationaltransactions
(upper-casevariablesdenotecountryaggregates)
ζi ... bundleofdomesticpolicies
Zi ... bundleofexogenousparameters
Q ... vectorofworldmarketpricesofmi,Mi
τi isfullsetoftaxinstrumentsonintltransactionsrebatedviaTi
AntonKorinek (JHU) SpilloversandPolicyCooperation IMFARC2014 5/26
Examples
Example 1: Canonical open economy macro model:
(cid:88)
max βtu(ci) s.t. ci +(1−ξi)bi /R = yi +bi
t t t t+1 t+1 t t
(ci,bi )
t t+1 i t
Mapping:
define net imports mi = ci −yi = bi −bi /R
t t t t t+1 t+1
domestic variables xi = {ci}
t
state variables Zi = {yi}, domestic policies ζi = ∅
t
world market prices Q = 1/Πt R
t s=0 s+1
external policy instruments (1−τi) = 1/Πt (1−ξi )
t s=1 s+1
→ utility Ui(xi) = (cid:80) βtu(ci)
t t
→ constraints fi(·) = ci −yi −mi ≤ 0 ∀t
t t t t
AntonKorinek (JHU) SpilloversandPolicyCooperation IMFARC2014 6/26
Examples
Example 1: Canonical open economy macro model:
(cid:88)
max βtu(ci) s.t. ci +(1−ξi)bi /R = yi +bi
t t t t+1 t+1 t t
(ci,bi )
t t+1 i t
Mapping:
define net imports mi = ci −yi = bi −bi /R
t t t t t+1 t+1
domestic variables xi = {ci}
t
state variables Zi = {yi}, domestic policies ζi = ∅
t
world market prices Q = 1/Πt R
t s=0 s+1
external policy instruments (1−τi) = 1/Πt (1−ξi )
t s=1 s+1
→ utility Ui(xi) = (cid:80) βtu(ci)
t t
→ constraints fi(·) = ci −yi −mi ≤ 0 ∀t
t t t t
AntonKorinek (JHU) SpilloversandPolicyCooperation IMFARC2014 6/26
Examples
Other Examples:
multiple traded goods: mi = (mi ) with k = 1...K
t,k
multiple states of nature: mi = (mi ) with s ∈ S
t,s
non-traded goods: xi = (ci ,ci ,yi ) and fi = yi −ci
T,t N,t N,t t,2 N,t N,t
labor: xi = (ci,(cid:96)i) and Ui(xi) = (cid:80) (cid:2)u(ci)−d((cid:96)i)(cid:3)
t t t t t
capital: xi = (ci,ki) and fi includes law of motion
t t t
domestic market imperfections → capture in fi(·)
multiple types of agents, political preferences → capture in Ui(xi)
→ framework nests a wide range of open economy macro models
AntonKorinek (JHU) SpilloversandPolicyCooperation IMFARC2014 7/26
Solution Step 1
Lemma (Separability)
Given the complete external policy instruments, we can separate the
domestic and international optimization problems.
Step 1: optimal domestic allocation for given external (mi,Mi)
representative agent optimizes
domestic policymaker optimizes
→ defines reduced-form utility function Vi(mi,Mi)
Example (baseline model): Vi(mi,Mi) = (cid:80) βtu(yi +mi)
t t t
AntonKorinek (JHU) SpilloversandPolicyCooperation IMFARC2014 8/26