International Economic Policy Coordination Research Articles

Research on the Comovement of Business Cycles and International Economic Policy Coordination

Research on the Comovement of Business Cycles and International Economic Policy Coordination

Research on the Coordination Between International Economic Situation and International Economic Policy

Under the background of the deepening development of economic globalization, the economies of various countries in the world are interdependent, and the economic coordination policies among countries are also emerging one after another. The solutions to the problems existing between countries' trade have also attracted more attention. At present, the complexity of the global economic recovery situation lies in the fact that the recovery foundation of private consumption and private investment in the United States and Europe is still very fragile; The deterioration of European sovereign debt situation has forced EU countries to adopt more severe public expenditure austerity plans. The extroversion of economic policy coordination between countries is constantly expanding. As far as a country is concerned, maintaining the balance between domestic employment and inflation and the balance of international payments is an important goal of its foreign trade. This paper mainly studies the coordination between international economic situation and international economic policy, and puts forward new ideas for overcoming the problems in the process of international economic integration by analyzing the characteristics of global macroeconomic situation and international economic policy coordination.

The Chinese Way of Reforming Global Economic Governance: An Analysis of China’s Rising Role in the Group of Twenty (G-20)

Since the Global Financial Crisis engulfed much of the world in 2008, the Group of Twenty (G-20) has emerged as the self-acclaimed “premium forum” for international economic cooperation and policy coordination. The ascendency of G-20, of which China is a part, indicates the world’s preference for a more inclusive and informal economic governance model, moving away from the relatively restrictive Group of Seven (G-7) and the legalized Bretton Woods settings. This article analyzes China’s participation and increasingly critical role in the G-20. China’s main priorities in relation to the G-20 evolved over time. The initial focuses on containing financial contagion and reforming Bretton Woods institutions were followed by attempts to resolve bilateral trade issues with the US and to fight the Coronavirus Disease 2019 (COVID-19) pandemic. China aspires to transform the G-20 from an ad hoc crisis management platform to one promoting proactive long-term global policy cooperation, partly in support of “a community with shared future for humanity” and the Belt and Road Initiative. However, public distrust of international economic interdependence, populist backlash against neoliberal globalization, as well as geopolitical, ideological, technological tussles between China and the West collectively present significant challenges to the G-20.

International Coordination of Economic Policies in the Global Financial Crisis: Successes, Failures, and Consequences

The global financial crisis dominated the international financial landscape during the first 20 years of the 21st century. This paper assesses the contribution of the international coordination of economic policies to contain the crisis. The paper evaluates international efforts to diagnose the crisis and decide on appropriate responses, the treatments that were agreed and adopted, and the successes and failures as the crisis unfolded. International economic policy coordination eventually contributed importantly to containing the crisis, but the authorities failed to agree on a diagnosis and the consequent need for joint action until the case was obvious. The policy actions that were adopted were powerful and effective, but they may have undermined prospects for coordinated responses to crises in the future.

The End of the Bretton Woods International Monetary System

This paper examines two episodes of international economic policy coordination: the efforts to modify the Bretton Woods international monetary system in the 1960s and early 1970s and to reform the system after the closing of the US official gold window on August 15, 1971. The paper examines the diagnoses of the problem in each episode, the treatments applied, and the results in the short run and longer run. In the short run, both episodes were failures. The international monetary system that emerged in the mid-1970s, while less systemic than some would like, has nevertheless stood the test of time, although proposals for its reform continue to be discussed.

Phillips curve in welfare economics and game theory

Phillips curve as the interdependence between inflation and unemployment has become a very powerful analytical tool of economic policy and macroeconomic theory. Created in the famous article by A. Phillips in the late 50s, it has been increasingly implemented in macroeconomic models and practical choices of economic policy, dealing with the two most important forms of macro imbalance: inflation and unemployment. Therefore, it has become obvious that it can be used in the context of Pareto-optimum and social welfare function, as well as in the game theory and international economic policy coordination. The paper analyzes Phillips curves in the game theory and welfare economics framework (as a choice between the different inflation and unemployment rates), and aims to demonstrate theoretically and practically that it is possible to connect this powerful instrument of economic policy with important theoretical concepts in economics and recent intellectual achievements of the game theory.

Economic Superpower in an Age of Limits

This paper examines macroeconomic policy coordination between Japan and the United States under the locomotive strategy from 1977 to 1979. Previous studies have described the strategy as a fiasco because of its negative economic impact. In fact, the Japanese government, after two years of stimulus packages, quit trying to be a locomotive bringing other developed countries out of their economic difficulties and the u.s. government admitted it in 1979. On the other hand, as this article shows, bilateral cooperation with the United States under this strategy expanded the roles and burdens of Japan, an emerging economic superpower, in international economic policy coordination. Japan’s efforts to implement the strategy made the u.s. government believe that Tokyo would continue to respond to its request to bear larger international responsibilities, while it also increased awareness of Japan’s global role in Tokyo. These bilateral perceptual changes paved the way for subsequent policy coordination and Japan’s assumption of greater burdens, notably the adoption of large-scale stimulus packages under belt-tightening budgets.

Gustav Cassel's purchasing power parity doctrine in the context of his views on international economic policy coordination

Gustav Cassel (1866–1945) has formulated a number of original ideas concerning international economics and finance. These include what possibly was one of the earliest theoretical visions of the goals and scope of international economic policy coordination. However, these ideas largely remained unnoticed or were forgotten after his death. To a large extent, it is due to the fact that Cassel's comprehensive theoretical framework was subject to later fragmentation, while one of the key elements of his argumentation – the purchasing power parity (PPP) doctrine – was taken out of the context and subsequently misinterpreted. The paper aims to reconstruct Cassel's vision of the goals and tools of the international economic policy coordination and to present PPP doctrine in the original theoretical framework.

Coordination in a Crisis: Domestic Constraints and EU Efforts to Address the 2008 Financial Crisis

This article explores possible theories of international economic policy coordination, and then proceeds to test these theories through a qualitative analysis of four EU member states – Germany, France, Belgium, and the Netherlands – and their preferences and experiences during the financial market crisis period of Fall/Winter 2008–2009. Both institutional and basic realist theories for coordination preferences are evaluated for explanatory power against the case of the 2008 financial crisis and are found lacking. Instead, this analysis finds that a comparative foreign policy theory of political constraints – institutional design, political polarization, and leader time horizons – emerges as the best fit for explaining the divergence in foreign policies among these EU member states.

The G-20 framework for strong, sustainable, and balanced growth: glass half empty or half full?

The G-20 Framework for Strong, Sustainable and Balanced Growth was launched by the G-20 leaders in 2009 to strengthen coordination of national economic policies as the world emerged from the 2008–9 financial crisis. Building on earlier attempts at international economic policy coordination, the Framework has made significant advances in the detailed institutional procedures for policy coordination, including information sharing, analytical tasking, and the development of structured policy discussions to address medium-term issues. Some politically difficult challenges have been overcome using varied techniques, including enabling the system of collaboration to evolve incrementally over time. However, further progress is needed if the Framework is to deliver on the remit set by leaders.

The European Union in the G20: what role for small states?

The G20 has emerged as the premier forum for international economic policy coordination. For small EU states, the EU's participation in the G20 represents a particular challenge as they may be faced with decisions in which they had no say. This article looks at the possibilities for small state involvement in the G20 process and analyses the extent to which they can influence the EU's participation in the G20. The article suggests two sets of variables to explain the possibilities for influence of small states in the EU's external relations. Looking into four financial and economic policy dossiers, the article explores the conditions of success of small states' strategies. The article does not contradict that the big member states dominate the EU presence in the G20, but it does argue that small states may successfully use the EU as a foreign policy platform to pursue national objectives. Their influence varies strongly and is bound to a number of conditions.

The Great recession and developing countries: economic impact and growth prospects

While globalization has been a powerful engine of economic growth over the past three decades, it has also posed new problems and challenges, especially for international economic policy coordination. In the past decade, the large and rapid increases in trade, remittances, and international financial flows across borders have been a strong incentive for economic growth, not only in East and South Asia but also in Latin America and Sub-Saharan Africa. And rapid and sustained economic growth in several low- and middle-income economies has been steadily altering the economic weights of different regions in the world economy. The ten case studies in this volume illustrate the wide range of effects of, and responses to, the global crisis in low-and middle-income economies. While the case studies do not constitute a statistically representative sample of the globe, they illustrate a broad range of experiences in the wake of the crisis and give insights into both the benefits and challenges of globalization. The use of a common methodology in preparing the cases unquestionably facilitates cross-country comparisons and helps identify areas where more study is needed to increase the understanding of the current problems of, and prospects for, developing countries.

Disputing over international economic policy coordination: The ‘first generation' of models

Although international economic coordination was one of the major questions arising in international economics after World War I, when the British hegemonic stability broke down, it mainly attracted the interest of economists from the 1960s onwards, as economic interdependence revealed itself to be a significant phenomenon, with an expansion of research during a period that began in the mid-1970s and ended in the late 1980s. During those fifteen years, a major theoretical effort yielded a significant body of literature which may be analyzed as an outcome, independently of its practical application. In fact, international economic policy coordination remained a speculative matter which, it seems, did not adequately support or persuade policy-makers to implement concrete economic coordination among countries. Far from explaining why this happened, a detailed investigation of the assumptions and logical aspects on which theories were grounded may provide insights into their practical workability.

Coordination internationale et sortie de crise : quel rôle pour le G20 ?

Le G20 a joue un role cle dans la coordination internationale des politiques economiques, pendant la premiere partie de la crise. D’une part, l’ampleur de la crise a aligne les preferences des grandes economies, d’autre part, la communaute internationale a rapidement du trouver une instance de cooperation adaptee dont le mode de fonctionnement par consensus, la couverture geographique etendue aux grands emergents et le niveau le plus eleve de representation etaient adaptes aux enjeux. Dans la phase de sortie de crise et en regime de croisiere, les conditions de la cooperation internationale sont moins favorables, car les fortes divergences structurelles au sein du G20 engendrent mecaniquement un desalignement des preferences. En outre, sequelle de la crise, les marges de manœuvre de la politique economique, singulierement de la politique budgetaire, sont aussi tres differentes. Pour autant, cet embryon de coordination internationale engendre par la crise a des raisons de survivre car (1) il y a une demande des marches mais aussi des populations, (2) l’approche holistique adoptee par le G20, associant coordination macroeconomique, renforcement du systeme monetaire international et reforme de la regulation financiere peut faciliter les compromis globaux et (3) la formalisation de la coordination des politiques economiques au sein du G20 (« cadre pour la croissance ») en est un facteur de perennisation. Classification JEL : F33, F42, F55.

Globalization Facts and Figures

Globalization has become the focus for a wide range of protests against various features of the world economy. This paper aims to give a concise summary of the economic dimensions of globalization, while leaving to one side other aspects—such as cultural, environmental, or political ones—that are beyond the scope of the IMF. Periods of increased globalization have tended to be associated with technological innovations that reduce transportation and communications costs and with generally rising standards of living. Moreover, countries that have embraced openness to the rest of the world have done better than those that have not. Nevertheless, globalization may also be associated with increased inequality and volatility, which may justify strengthening domestic safety nets and financial supervision and regulation, and enhancing international economic policy coordination. The IMF helps to ensure economic gains from globalization by encouraging trade liberalization, reducing countries’ vulnerability to crises, lending to them when they are in difficulty, and assisting them in putting in place structural reforms that help reduce poverty.

Multilateral institutions for international economic policy coordination: bargaining vs voting

Abstract. We study a world economy where worldwide policy coordination is essential to optimally stabilize unfavorable common supply shocks. We develop a two-stage game to investigate how to implement the first-best response to these shocks via a multilateral institution, whose board of directors is composed of a representative per each member country. In a first stage, national governments nominate their representatives on the board. In a second stage, the board collectively chooses stabilization policies. We compare the relative merits of two collective choice mechanisms - bargaining and majority voting - in avoiding manipulation of the cooperative agreement through the strategic nomination of national representatives.

The Euro and Internal Economic Policy Coordination

Ever since the breakdown of the Bretton Woods system in 1973, economists and policy-makers alike have been confronted with the issue of international economic policy coordination. In the 1980s, the gathering of G7 Finance Ministers and Central Bank Governors emerged as the main international coordination forum, culminating in the Plaza and Louvre agreements of 1985 and 1987.1 But recent events such as the Asian or Russian crises have underscored the limitations of what basically amounts to an informal coordination framework. Subsequently, the attention of policy-makers, as exemplified for instance in the action plan of the G7 leaders of October 1998,2 is now turning towards the strengthening of institutions such as the IMF, the World Bank and the BIS.

Challenges for Economic Policy Coordination within European Monetary Union

The Coordination of National Stabilization Policies: Evolution of National Policies and International Institutions R.C. Bryant. International Monetary Policy Coordination T. Persson, G. Tabellini. Policy Making in an Integrated World: From Surveillance to...? B. Eichengreen. International Macroeconomic Policy Coordination: Any Lessons for EMU? A Selective Survey of the Literature P. Mooslechner, M. Schurz. The Euro and Internal Economic Policy Coordination A. Italianer. Can the ECB be Truly Independent? Should it be? M. Demertzis, et al. The Stability and Growth Pact: A Delicate Balance or an Albatross? M.B. Canzoneri, B.T. Diba. Economic Policy Coordination in the EMU: Implications for the Stability and Growth Pact F. Breuss, A. Weber. The Stability Pact and the Interdependence of Monetary and Fiscal Policy Rules A. Hughes Hallett, P. McAdam. Unemployment, Wage Developments and the Economic Policy Mix in Europe S. Collignon. Perspectives for Future Economic Policy Coordination within EMU K. Bayer. Challenges for International Economic Policy Coordination in EMU M. Durand. Coordinating Stability: Some Remarks on the Roles of Monetary and Fiscal Policy under EMU B. Winkler. Index.

Challenges for International Economic Policy Coordination in EMU: Institutional Setting, Financial Market Reactions and the Importance of Systemic Risk

The launch of the euro and, with it, the institutional framework that has been established are raising a number of important issues for the co-ordination of policies, not only within EMU, but also with countries outside the euro area. This paper looks at some of the challenges that the institutions and processes put in place for conducting policy in the euro area pose for international co-ordination. More precisely, it assesses whether there are risks that the new institutional arrangements may generate more imbalanced policies than earlier, thereby creating negative international spillovers. This paper also discusses whether these arrangements may create new systemic risks in international financial markets.

Parité euro/dollar et ajustements macro-économiques : que révèle une analyse en termes de change d’équilibre ?

Euro/ Dollar Parity and Macro-Economic Adjustments : What Does an Equilibrium Exchange Rate Analysis Show ? This article aims to discern the macro-economic adjustments underlying identifiable exchange-rate misalignments by estimating the nominal equilibrium parity of the dollar vis-à-vis the euro and to highlight the ambiguity surrounding the determinants of the policy mix to be implemented in Europe and the United States. Our chosen theoretical approach is that developed by J. Williamson, who equates equilibrium exchange rates with the real effective exchange rate that enables economies to reach their medium-run internal and external equilibrium simultaneously. The equilibrium bilateral parities of the European currencies vis-à-vis the dollar are calculated by inverting a world trade model derived from a multinational model (NIGEM). A proxy for the euro/dollar exchange rate is then constructed by aggregating six of the European currencies that will join the euro, using their weights in the Ecu basket. Our results show that the dollar is overvalued by 10% in relation to the euro in mid-May 1998. The size of the American current account deficit and the Euro Area’s surplus explain the gap. If the dollar were to remain at today’s level of 5.50 French francs, and the intra-Euro Area parities at their 12 October central rates, then the dollar would be close to its equilibrium parity. This result corresponds to an American target of a 1-GDP-point current account deficit, which is deemed to be the maximum sustainable current account deficit. Assuming that savings will become a key (exogenous) determinant for current account balances, and that savings will come to outweigh more traditional explanatory variables such as cyclical lags and competitiveness differentials, while remaining independent of them, we must then examine the nature of the private savings deficit in the United States. If it is a structural deficit, then the exchange rate is the appropriate adjustment variable for reducing the American current account deficit, even though it would harm European exporters’ price competitiveness. If, on the other hand, the deficit is more cyclical in nature, the problem facing the United States is how well policy mix can regulate the American savings rate, independently of its effects on the real exchange rate. In view of that American authorities’ inability or unwillingness to adopt an appropriate policy mix, and in so far as international co-ordination of economic policies remains highly unlikely, it is up to Euro Area monetary authorities to factor exchange rates into their objectives, at least informally. Under the prevailing conditions, the Euro Area monetary authorities should choose today to undertake a more marked easing of monetary conditions than that just announced by the Fed. harm European exporters’ price competitiveness. If, on the other hand, the deficit is more cyclical in nature, the problem facing the United States is how well policy mix can regulate the American savings rate, independently of its effects on the real exchange rate. In view of that American authorities’ inability or unwillingness to adopt an appropriate policy mix, and in so far as international co-ordination of economic policies remains highly unlikely, it is up to Euro Area monetary authorities to factor exchange rates into their objectives, at least informally. Under the prevailing conditions, the Euro Area monetary authorities should choose today to undertake a more marked easing of monetary conditions than that just announced by the Fed.