Lesson for the History of International Macroeconomics: Multi-Country Models and Linkage Systems, Their Challenges and Opportunities

This chapter overviews four decades of analytical frameworks adopted by DG II modellers to address the issue of economic interdependencies. In multi-country models, such as those documented in the other chapters of this book, a core dimension is precisely the “linkage system”: this describes how national economic variables will be mutually determined. Building such “linkage systems” entails developing clear assumptions about the mechanisms of trade or the mechanisms determining financial flows or exchange rates. This chapter reviews the evolution of such assumptions, highlighting in particular how key theoretical contributions, in the 1970s and 1980s, resulted precisely from the multi-country modelling activities initiated by the DG II. As already emphasised in other cases, economic analysis developed within policymaking institutions is thus a source of original contributions to economic theory, at par with academic contributions.