Working Paper: NBER ID: w2670
Authors: Jacob A. Frenkel; Morris Goldstein; Paul Masson
Abstract: This paper discusses the scope, methods, the effects of international coordination of economic policies. In addressing the scope for and of coordination, the analysis covers the rationale for coordination, barriers to coordination, the range and specificity of policies to be coordinated, the frequency of coordination, and the size of the coordinating group. Turning to the methods of coordination, the emphasis is on the broad issues of rules versus discretion, single-indicator versus multi-indicator approaches, and hegemonic versus more symmetric systems. In an attempt to shed some light on the effects of alternative rule- based proposals for coordination, we present some simulations of a global macroeconomic model (MULTIMQD) developed in the International Monetary Fund. The simulations considered range from 'smoothing rules for monetary and fiscal policy that imply only minimal international coordination, to more activist "target-zone" proposals that place greater restrictions on national authorities in the conduct of monetary and/or fiscal policies. The simulation results are compared to the actual evolution of the world economy over the 1974-87 period. Our findings suggest that simple mechanistic rule-based proposals are unlikely to lead to improved performance.
Keywords: International Coordination; Economic Policies; Global Economy; Macroeconomic Models
JEL Codes: F02; F33; F41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| uncoordinated economic policies (F42) | negative externalities for other countries (F69) |
| larger countries' policy actions (F68) | spillover effects (F69) |
| absence of coordination (P11) | nationalistic solutions (F52) |
| coordination (P11) | stabilize exchange rates (F31) |
| coordination (P11) | enhance credibility of monetary policies (E52) |
| coordination (P11) | welfare improvements (I38) |