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This paper is concerned with macroeconomic policy interaction in a two-country flexible exchange rate model with no exchange market intervention. The three key ingredients are (1) a short-run non-vertical Phillips curve in each country; (2) positive transmission of economic expansion through the terms of trade; and (3) zero or constant capital movements, so that the flexible exchange rate keeps the trade balance unchanged. [ABSTRACT FROM AUTHOR]

Over the late 1970s, U.S. macroeconomic policy underwent a major shift, rejecting incomes policies and accepting macroeconomic restraint as the primary means to holding down inflation and strengthening the dollar. In conventional narratives, this shift is cast as a response to the diminishing effectiveness of incomes policies and the fundamental importance of macroeconomic restraint in maintaining monetary stability. However, such accounts obscure the interpretive context in which these shifts occurred, as beliefs regarding the limits of incomes policies and the need for restraint took on "lives of their own." In this paper, I examine the intersubjective context of these policy shifts, addressing not only the domestic context of debates over wage-price trends, but also German pressure on U.S. policy, and the key influence of Chancellor Helmut Schmidt in urging U.S. oil deregulation and monetary restraint. I specifically highlight interactions in the context of the 1977 London and 1978 Bonn summits and the 1979 World Bank-IMF meetings. Taken as a whole, this effort highlights the intersubjective context of domestic-systemic debates, as liberalizing pressures reflected not only domestic pressures from within U.S. society but also external German influences, as together mediated by key U.S. policymakers. [ABSTRACT FROM AUTHOR]

We propose formal and quantitative measures of the risk that future inflation will be excessively high or low relative to the range preferred by a private sector agent. Unlike alternative measures of risk, our measures are designed to make explicit the dependence of risk measures on the private sector agent's preferences with respect to inflation. We illustrate our methodology by estimating the risks of deflation for the United States, Germany, and Japan for horizons of up to 2 years. The question of how large these risks are has been subject to considerable public debate. We find that, as of September 2002 when this question first arose, there was no evidence of substantial deflation risks for the United States and for Germany, contrary to some conjectures at the time. In contrast, there was evidence of substantial deflation risks in Japan. [ABSTRACT FROM AUTHOR]

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Economist Albert Hirschman's description of the way Keynesian doctrines were spread from the U.S. to a grateful world largely as a result of the influx of American Keynesian advisers into countries defeated and/or impoverished during World War II is a nice tale, but it bears little relationship to reality. Hirschman's evidence is terribly fragmentary, to say the least. He concedes that in Germany and Japan the top jobs were generally "given to military officers and to experienced businessmen, bankers, lawyers, and other managerial types had by no means been converted to Keynesianism and tended in fact to be hostile. Professor Hirschman no doubt knows all about the key role that Keynes personally played in all aspects of British wartime economic strategy. He must know the manner in which Keynes' basic proposition concerning the means by which governments could carry out their postwar responsibility to maintain full employment via fiscal policy was set out in a government white paper in 1944 and in government policy thereafter.