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International Macroeconomic Policy Coordination

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  • Stanley Fischer
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    Abstract

    Increasing integration of the world economy, in both trade and capital markets, holds out the promise of mutual gains to countries from the coordination of their macroeconomic policy decisions. In this paper I describe the theoretical case for coordination, evaluate empirical estimates of the potential gains, review the history of macroeconomic policy coordination, and discuss the prospects for increased coordination. The theoretical argument is seen most clearly in the consideration of fiscal expansion. Any one country that expands will create a current account deficit; all countries expanding together avoid that problem. In principle coordination is always better, but empirical estimates suggest the likely gains are small because the effects of policy in one country on the economies of other countries are small. Further, uncertainties about the effects of policy, reflected in differences among econometric models, mean that countries may have very different views on the likely outcomes of agreements--and therefore that some of them are bound to be disappointed. Information exchanges and some coordination on trade policy take place in a large number of international organizations and frameworks. But the breakdown of the Bretton Woods system suggests that international differences in policy goals are too large for systematic macroeconomic policy coordination among the major economies to take place anytime soon. Occasional agreements on particular policy packages are possible, and coordination does take place in the framework of the European Monetary System.

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    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2244.

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    Date of creation: May 1987
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    Publication status: published as Fischer, Stanley, "International Macroeconomic Policy Coordination," in International Economic Cooperation," ed. by Martin Feldstein, Chicago: University of Chicago Press, 1988.
    Handle: RePEc:nbr:nberwo:2244

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    Cited by:
    1. Scheide, Joachim & Sinn, Stefan, 1987. "Internationale Koordination der Wirtschaftspolitik: Pro und Contra," Kiel Discussion Papers 135, Kiel Institute for the World Economy (IfW).
    2. Matthew B. Canzoneri & Hali J. Edison, 1989. "A new interpretation of the coordination problem and its empirical significance," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 340, Board of Governors of the Federal Reserve System (U.S.).
    3. Mina Baliamoune, 2000. "Economics of Summitry: An Empirical Assessment of the Economic Effects of Summits," Empirica, Springer, Springer, vol. 27(3), pages 295-319, September.
    4. Patrick Artus, 1992. "Passage à l'union économique et monétaire en Europe : effets sur la croissance et les politiques budgétaires," Économie et Prévision, Programme National Persée, Programme National Persée, vol. 106(5), pages 123-137.
    5. J. James Reade & Ulrich Volz, 2009. "Leader of the Pack? German Monetary Dominance in Europe Prior to EMU," Economics Series Working Papers 419, University of Oxford, Department of Economics.
    6. Hassapis, Christis & Pittis, Nikitas & Prodromidis, Kyprianos, 1999. "Unit roots and Granger causality in the EMS interest rates: the German Dominance Hypothesis revisited," Journal of International Money and Finance, Elsevier, Elsevier, vol. 18(1), pages 47-73, January.
    7. Julius Horvath & Magda Kandil & Subhash C. Sharma, 1996. "On the European Monetary System: The Spillover Effects of German Shocks and Disinflation," Macroeconomics, EconWPA 9605001, EconWPA.
    8. Michael T. Belongia, 1988. "Prospects for international policy coordination: some lessons from the EMS," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 19-29.
    9. Caporale, Guglielmo Maria & Kalyvitis, Sarantis & Pittis, Nikitas, 1996. "Interest rate convergence, capital controls, risk premia and foreign exchange market efficiency in the EMS," Journal of Macroeconomics, Elsevier, Elsevier, vol. 18(4), pages 693-714.
    10. Michele Fratianni & Juergen Hagen, 1990. "German dominance in the EMS," Open Economies Review, Springer, Springer, vol. 1(1), pages 67-87, February.

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