The economic policy mix, policy cooperation, and protectionism: Some aspects of macroeconomic interdependence among the United States, Japan, and other OECD countries

In this paper we examine the macroeconomic interdependence of Japan and the United States using the McKibbin-Sachs global (MSG) simulation model of the world economy. Our goal is to determine how shifts in macroeconomic policies in the United States or Japan affect the other country as well as the rest of the world. In particular, we examine the following three issues: (1) the likely macroeconomic ramifications for the United States, Europe, and Japan of significant budget cuts in the United States; (2) the macroeconomic implications of a protectionist tariff imposed by the United States; and (3) the scope for policy coordination among the United States, Japan, and Europe.