North-South interactions: a general-equilibrium framework for the study of strategic issues

Currie, D., Vines, D., Moutos, T., Muscatelli, A. and Vidalis, N. (1988) North-South interactions: a general-equilibrium framework for the study of strategic issues. In: Currie, D. and Vines, D. (eds.) Macroeconomic Interactions Between North and South. Cambridge University Press: Cambridge, pp. 65-105. ISBN 9780521361217

Abstract

The model is used to examine the spillover effects of exogenous shocks originating in each of the two blocs. Knowledge of these spillover effects allows the gains from cooperation between North and South in setting macroeconomic policies to be evaluated using the game-theory techniques common in the literature on policy coordination. The model incorporates a variety of North-South linkages. First, commodity prices are forward-looking, and in addition to flow demands for commodities for consumption and production, speculative stocks of commodities are held by Northern investors. Spillover effects occur through the trade balance, and financial markets also link the two blocs: Northern interest rates affect Southern debt payments. In the face of a current-account levy on the South (arising, say, from a fall in aid disbursements from the North), there are gains from cooperation between North and South in devising a joint adjustment programme. However, the gains accrue primarily to the North, and the South faces a strong temptation not to adjust, unless compensated by other means. This suggests the presence of potential gains from cooperation, but gains that may be hard to realise.

• Item Type: Book Sections
• Status: Published
• Glasgow Author(s) Enlighten ID: Muscatelli, Professor Anton
• Authors: Currie, D., Vines, D., Moutos, T., Muscatelli, A., and Vidalis, N.
• College/School: College of Social Sciences > Adam Smith Business School > Economics
• Publisher: Cambridge University Press
• ISBN: 9780521361217

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