International monetary policy coordination: past, present and future

This paper examines two explanations for the recent spate of complaints about cross-border monetary policy spillovers and calls for international monetary policy coordination, a development that contrasts sharply with the monetary system in the 1980s, 1990s and until recently. The first explanation holds that deviations from rules-based policy at several central banks created incentives for other central banks to deviate from such policies. The second explanation either does not see deviations from rules or finds such deviations benign; it characterises recent unusual monetary policies as appropriate, explains the complaints as an adjustment to optimal policies, and downplays concerns about interest rate differentials and capital controls. Going forward, the goal for central banks should be an expanded rulesbased system similar to that of the 1980s and 1990s, which would operate near an international cooperative equilibrium. International monetary policy coordination – at least formal discussions of rules-based policies and the issues reviewed here – would help central banks get such equilibrium.