1 A simple irrelevance result for cooperation and commitment
The key contribution of Chari and Kehoe (2002) is to show that generically the broad irrelevance result of Proposition 5 disappears if one relaxes at least one of the two assumptions A1 or A2.
The model of Chari and Kehoe (2002) leads to conclusions which are in spirit very different from the irrelevance result of Proposition 5.
i]), leading to a broad irrelevance result of cooperation and commitment which, in fact, covers also mixed coalitions between private agents and policymakers.
In sum, it is easy to see that, by adding two additional instruments in the spirit of Dixit and Lambertini, Proposition 4 applies within the augmented framework, leading to a broad irrelevance result of coalitions structures and commitment patterns among international policymakers, covering both monetary and fiscal policymakers.
30) However, as a special case within this representation, it is straightforward to establish the benchmark irrelevance result of monetary policy cooperation obtained by Obstfeld and Rogoff if one abstracts from sector-specific shocks and imposes instead that there only exist two country-specific shocks, i.
In order to obtain an irrelevance result along these lines, both criteria need to be satisfied.
10) Notice that because there are no direct spillovers between any pair of players, the irrelevance result, in fact, covers also mixed coalitions between private agents and policymakers.
It is ironic that this leverage irrelevance result is what many may want to remember from Merton Miller.
Rather, what justifies focusing on the leverage irrelevance result is that it describes "the central tendency around which observations scatter" (Modigliani and Miller (1958), p.