Abstract
This paper investigates whether coordinated macroeconomic policy reactions to a negative productivity shock give better results than non-coordinated policies and passive adaptations to a shock. The framework used is the McKibbin-Sachs Global Model of the world economy. which incorporates rational expectations. The USA. Japan and Germany are regarded as players in a dynamic game. using money supplies and government consumption as strategic variables. The implications of different specifications of the objective functions are investigatcd. It is shown that in general. cooperative policies give results that are superior to non-cooperativc Nash equilibrium solutions. The gains from active policy-making and from cooperation depend strongly on the assumptions made about the objective functions. in particular about the weights given to different target variables.
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