Policy Coordination Under Model Disagreement and Uncertainty

24 Pages Posted: 21 Feb 2019

See all articles by Carsten Hefeker

Carsten Hefeker

HWWA Institute of International Economics; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Michael Neugart

Technical University of Darmstadt

Date Written: 2019

Abstract

What are the incentives for governments to coordinate their policies internationally when there is model disagreement and uncertainty? We build a model where countries disagree on policy targets and how policies affect the economies, and show that uncertainty not only determines the type of cooperative policy but also whether countries want to cooperate at all. Countries facing larger model disagreement also need to face larger uncertainty with respect to policy spillovers to agree on cooperation. Thus, uncertainty on spillovers can be a substitute for model agreement.

Keywords: policy coordination, uncertainty, ideological commitment, model disagreement

JEL Classification: F420, F530, F550, F680

Suggested Citation

Hefeker, Carsten and Neugart, Michael, Policy Coordination Under Model Disagreement and Uncertainty (2019). CESifo Working Paper No. 7477, Available at SSRN: https://ssrn.com/abstract=3338832

Carsten Hefeker (Contact Author)

HWWA Institute of International Economics ( email )

Heimhuder Strasse 71
20347 Hamburg, DE Hamburg 20148
Germany

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Munich, DE-81679
Germany

Michael Neugart

Technical University of Darmstadt ( email )

Hochschulstra├če 1
Darmstadt, 64289
Germany

HOME PAGE: http://www.vwl3.wi.tu-darmstadt.de

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