Essays on macroeconomic interdependence and policy coordination

The major purpose of the dissertation is to determine under which conditions monetary policy coordination between two members of the European Monetary System (EMS) is welfare improving. If the two countries are exactly identical coordination is welfare improving and the exchange rate between them fixed. If they are extremely different a Nash solution will emerge and the EMS is unlikely to survive. If they differ slightly coordination is welfare improving and the EMS should be considered a flexible exchange rate system. The dissertation then goes on to test empirically whether various countries respond to the United States' monetary and fiscal policy. It is found that the Canadian reaction is very strong, that West Germany, unlike Japan, would expand its economy if the United States reduced her budget deficit, and that France reacts more to Germany than to the United States. The behavior of the United Kingdom is not satisfactorily explained.