Open economy macro theory says that when a country is subject to idiosyncratic macro shocks, it should have its own …

choices that maximize the joint welfare of all countries following such a shock, when governments cooperate on both fiscal and … monetary policy. Adjusting to a large negative demand shock requires raising world aggregate demand, as well as redirecting … respond perversely. A negative shock causes an appreciation of the home terms of trade, exacerbating the slump in the home …