Abstract
This paper represents an empirical investigation of the linkages among a set of “large” macroeconomies and individual “small” macroeconomics. Models of the “large” economies are estimated, allowing for asymmetric interdependence of their endogenous variables upon each other. Optimal policy problems are solved in a finite-horizon linear-quadratic framework. A set of “small” macroeconomies is designated, and models of those small economies are estimated which take explicit account of the large economies' state variables. A pair of optimal policy problems is then solved for each of the small economies - one in which the historical values of the large countries' state variables are exogenous to the small country, and a second in which the exogenous values are those generated as optimal trajectories in the large countries' policy problems. The relative stability of the small economies' endogenous variables is evaluated.
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