The Economics of International Policy Coordination*

Abstract

One aspect of reforming the world monetary system is the issue of designing a set of ‘rules of the game’ within which countries can pursue their own national objectives and yet which still leads to some form of global coordination of macroeconomic policies. The issue of strategic interactions between countries has recently received some analytical insights with the application of game theory to the economics literature on interdependence between countries. The purpose of this paper is to survey these recent applications of static and dynamic game theory to the question of international policy coordination. It also surveys the results of the few empirical attempts to measure the potential gains to coordination.