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International coordination of macroeconomic policies has attracted much attention in recent years. The main issue has been whether economic performance can be improved by coordination Although it is still a controversial issue many economists have argued that coordination would make a positive contribution to economic performance. This paper deals with the requirements for successful fiscal coordination. It concludes that those requirements are such that the best fiscal policies that countries can pursue are those aimed at putting their houses in order.
This book studies the international coordination of monetary and fiscal policies in the world economy. It carefully discusses the process of policy competition and the structure of policy cooperation. As to policy competition, the focus is on monetary and fiscal competition between Europe and America. Similarly, as to policy cooperation, the focus is on monetary and fiscal cooperation between Europe and America. The spillover effects of monetary policy are negative while the spillover effects of fiscal policy are positive. The policy targets are price stability and full employment. The policy makers follow either cold-turkey or gradualist strategies. Policy expectations are adaptive or rational. The world economy consists of two, three or more regions. The present book is part of a larger research project on European Monetary Union, see the references at the back of the book. Some parts of this project were presented at the World Congress of the International Economic Association in Lisbon. Other parts were presented at the International Institute of Public Finance, at the Macro Study Group of the German Economic Association, at the Annual Meeting of the Austrian Economic Association, at the Gottingen Workshop on International Economics, at the Halle Workshop on Monetary Economics, at the Research Seminar on Macroeconomics in Freiburg, and at the Passau Workshop on International Economics.
This paper discusses the scope, methods, and effects of international coordination of economic policies. In analyzing the scope for and of coordination, the paper addresses the rationale for coordination, barriers to coordination, the range and specificivity of policies to be coordinated, and the frequency of coordination. In evaluating the methods of coordination, the emphasis is on the broad issues of rules versus discretion, single-indicator versus multi-Indicator systems, and hegemonic versus symmetric systems. Finally, using the MULTIMOD global macroeconomic model, some simulations are presented of several rule-based proposals for coordination.
The subject of this book is the kind of economic interaction and interdependence that has arisen among nations in the contemporary world economy, the nature and significance of the pattern of trade balances that have resulted from them, and the question of what, if anything, should be done by national governments about that pattern. The need for international coordination of economic policies is also investigated.
This paper uses two of the IMF’s DSGE models to simulate the benefits of international fiscal and macroprudential policy coordination. The key argument is that these two policies are similar in that, unlike monetary policy, they have long-run effects on the level of GDP that need to be traded off with short-run effects on the volatility of GDP. Furthermore, the short-run effects are potentially much larger than those of conventional monetary policy, especially in the presence of nonlinearities such as the zero interest rate floor, minimum capital adequacy regulations, and lending risk that depends in a convex fashion on loan-to-value ratios. As a consequence we find that coordinated fiscal and/or macroprudential policy measures can have much larger stimulus and spillover effects than what has traditionally been found in the literature on conventional monetary policy.
Recently, monetary authorities have increasingly focused on implementing policies to ensure price stability and strengthen central bank independence. Simultaneously, in the fiscal area, market development has allowed public debt managers to focus more on cost minimization. This “divorce” of monetary and debt management functions in no way lessens the need for effective coordination of monetary and fiscal policy if overall economic performance is to be optimized and maintained in the long term. This paper analyzes these issues based on a review of the relevant literature and of country experiences from an institutional and operational perspective.
Webb examines in particular how the United States, Japan, and Germany took unprecedented steps to coordinate monetary and fiscal policies in the late 1980s and early 1990s, although domestic political obstacles - not any decline in U.S. power - limited the impact of this policy coordination. He concludes by assessing the effectiveness of these attempts to reconcile the goal of a stronger liberal system of economic exchange with the desire to maintain national autonomy.
This book analyzes the arguments for and against national governments coordinating their macroeconomic stabilization policies and offers recommendations for facilitating enhanced intergovernmental cooperation in the future.
This book studies the strategic interactions between monetary and fiscal policies in the world economy. The world economy consists of two regions, say Europe and America. The policy makers are the central banks and the governments. The policy targets are low inflation, low unemployment, and low structural deficits. There are demand shocks, supply shocks, and mixed shocks. There are regional shocks and common shocks. This book develops a series of basic, intermediate, and more advanced models. Here the focus is on the Nash equilibrium. The key questions are: Given a shock, can policy interactions reduce the existing loss? And to what extent can they do so? Another topical issue is policy cooperation. To illustrate all of this there are a lot of numerical examples. The present book is part of a larger research project on European Monetary Union, see the references given at the back of the book. Some parts of this project were presented at the World Congress of the International Economic Association, at the International Conference on Macroeconomic Analysis, at the International Institute of Public Finance, and at the International Atlantic Economic Conference. Other parts were presented at the Macro Study Group of the German Economic Association, at the Annual Meeting of the Austrian Economic Association, at the Göttingen Workshop on International Economics, at the Halle Workshop on Monetary Economics, at the Research Seminar on Macroeconomics in Freiburg, at the Research Seminar on Economics in Kassel, and at the Passau Workshop on International Economics.