Abstract
This chapter develops a formal, game—theoretic model to analyze the importance of monetary policy regimes and central bank commitments in international policy games in a world economy of two interdependent countries. In particular, it examines the welfare implications of the choice of monetary policy instruments, the ability of monetary authorities to commit themselves to policy targets, private—sector responses and initiatives in international policy games, and international monetary policy cooperation. Important elements of the model are the strategic interactions between the monetary authority and the private sector and the policy interactions between the two countries’ monetary authorities.
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