Blanchard, O., Ostry, J. and Ghosh, A., (2013), “Overcoming the obstacles to international macro policy coordination is hard”, VoxEU, 20 December.
The world has just been through a period of unprecedented macro policy activism. More is set to come as central banks exit unconventional policies, governments fix their fiscal positions, and financial regulations are reformed. These national policies have undeniable international spillovers. This column argues that the setting is ripe for more cooperation and suggests some ways forward, even if international macro policy coordination may continue to be heard about more often than it is seen.
International policy coordination is like the Loch Ness monster – much discussed but rarely seen. Going back over the decades, and even further in history to the period between the two world wars, coordination efforts have been episodic.
Coordination seems to occur spontaneously in turbulent periods, when the world faces the prospect of some calamitous outcome and the key players are seeking to avoid cascading negative spillovers. In quieter times coordination is rarer, though not unheard of – the Louvre and Plaza accords are examples.
Today, policy coordination has resurfaced as a hot topic. While the worst of the global financial crisis is behind us, no one would claim that a return to the Great Moderation is on the cards, and policymakers around the globe appear worried about policy transmissions across many dimensions.
Policy coordination over time and the legacy of the crisis
Views on the size of cross-border policy spillovers have evolved over time, but today no one doubts that we live in an interconnected world. In the 1980s, the literature often concluded that these cross-border effects were small (Oudiz and Sachs 1984), but more recent evidence suggests that spillovers are sizeable, reflecting the increase in trade and financial integration (IMF 2013a). Moreover, spillovers are generally larger in turbulent times.
The externalities associated with cross-border spillovers also reflect a paucity of policy instruments relative to targets – which means that it is difficult, not to say impossible, for a country to inoculate itself against cross-border policy transmission. If the number of instruments equals the number of targets, cooperative and non-cooperative outcomes will be the same, and there will be no gains from international coordination. The legacy of the global financial crisis – high public debt, near zero interest rates, and at times what looks like domestic political dysfunction – suggests that nowadays policymakers have fewer policy tools to achieve their manifold objectives. In such circumstances, gains from policy coordination across countries are likely to be larger than during the Great Moderation.
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Σχετικές Αναρτήσεις
- Blanchard, O., Griffiths, M. and Gruss, B., (2013), “Boom, Bust, Recovery: Forensics of the Latvia Crisis”,Final Conference Draft, Fall 2013 Brookings Panel on Economic Activity, 19-20 September.
- IMF, (2013), World Economic Outlook, Washington DC : International Monetary.