Research Discussion Paper – RDP 8901 The World Economy from 1979 to 1988: Results from the MSG2 Model


This paper examines the role played in divergent macroeconomic policies in the major industrial economies in causing the large swings in asset prices and global trade imbalances experienced during the 1980s. Using the MSG2 model of the world economy, it is found that the observed and expected changes in fiscal and monetary policies in the major industrialised economies, as well as the OPEC oil price shocks and cessation of lending to the developing countries, can explain the 1980s experience reasonably well. The results also suggest that coordination of monetary policies alone, will do little to solve the current imbalances.

View the Paper