Decentralized Monetary Rules in a Three-Country Model and Time Series Evidence of Structural Dependence

Coordination of actions of several policy makers is fraught with difficulties of theoretical and practical nature. To understand the difficulties, it helps to note that policy coordination problems are in essence control problems with multi decision-makers under imperfect and non-identical information patterns. Since policy makers in several countries must act on information sets which are not identical, incomplete and imperfect, pooling or exchange of information may be desirable, were it not for the cost and delays in gathering, exchanging and processing information, or incentives for transmitting false information. Decentralized controls can sidestep some of the costs and delays involved in information exchange since they are control actions based mostly on locally available information, possibly supplemented by information supplied from outside on a few items.