ABSTRACT
The two-country model presented in previous chapters is useful in illuminating interactions between large countries, e.g. the USA, Germany and Japan, or between one very large country, such as the USA and the rest of the world. The vast majority of member countries of the OECD, however, are not large. If we are interested in analysing the ways in which large countries impact on smaller countries, a broader three-country framework is needed, one in which the world is composed of two very large economies and, as well, a smaller one which is linked by trade and finance to the two larger economies. As we shall see, such a framework is much more flexible and indeed allows us to deal in a much more realistic way, in today's world, with the macro impacts of very large economies on smaller economies (see Argy et al. 1989).
