Macroeconomic Management When Policy Space is Constrained: A Comprehensive, Consistent and Coordinated Approach to Economic Policy

By Vitor Gaspar, Maurice Obstfeld, Ratna Sahay, Douglas Laxton, Dennis P Botman, Kevin Clinton, Romain A Duval, Kotaro Ishi, Zoltan Jakab, Laura Jaramillo, Constant A Lonkeng Ngouana, Tommaso Mancini Griffoli, Joannes Mongardini, Susanna Mursula, Erlend Nier, Yulia Ustyugova, Hou Wang, Oliver Wuensch

September 28, 2016

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Vitor Gaspar, Maurice Obstfeld, Ratna Sahay, Douglas Laxton, Dennis P Botman, Kevin Clinton, Romain A Duval, Kotaro Ishi, Zoltan Jakab, Laura Jaramillo, Constant A Lonkeng Ngouana, Tommaso Mancini Griffoli, Joannes Mongardini, Susanna Mursula, Erlend Nier, Yulia Ustyugova, Hou Wang, and Oliver Wuensch. Macroeconomic Management When Policy Space is Constrained: A Comprehensive, Consistent and Coordinated Approach to Economic Policy, (USA: International Monetary Fund, 2016) accessed September 19, 2024

Disclaimer: This Staff Discussion Note represents the views of the authors and does not necessarily represent IMF views or IMF policy. The views expressed herein should be attributed to the authors and not to the IMF, its Executive Board, or its management. Staff Discussion Notes are published to elicit comments and to further debate.

Summary

The recovery in GDP growth since the global financial crisis has been halting and weak. Concern is widespread that countercyclical policies have run out of space or lack the power to raise growth or deal with the next negative shock. This note argues that room exists for effective policies and that it should be used if appropriate. The most promising route involves a comprehensive, consistent, and coordinated approach to policy making. Comprehensive policy actions within a country exploit synergies, making the whole greater than the sum of parts. Consistent policy frameworks anchor long-term expectations while allowing decisive short- to medium-term accommodation whenever necessary. Coordinated policies across major economies amplify the helpful effects of individual policy actions through positive cross-border spillovers. The findings of this paper indicate that policy coordination adds particular value if the current approach falls short of reviving growth, or in the event of a further downward shock.

Subject: Accommodative monetary policy, Financial statements, Fiscal policy, Fiscal stimulus, Inflation, Monetary policy, Prices, Public debt, Public financial management (PFM)

Keywords: Accommodative monetary policy, Aggregate demand, Asia and Pacific, Canada, Debt ratio, Demand management, Demand shock, Financial sector policies, Financial statements, Fiscal policy, Fiscal stimulus, Forecast interest rate path, Global, Global economy, Incomes policy, Inflation, Inflation expectation, Interest rate path, Japan, Labor market, Monetary policy, Monetary policy support, Monetary policy transmission, Policy interest rate rate constant, Rate of inflation, Reaction function, SDN, Structural reforms, Transmission mechanism

Publication Details

Pages:

61
Volume:

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DOI:

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Issue:

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Series:

Staff Discussion Notes No. 2016/009
Stock No:

SDNEA2016009
ISBN:

9781475537543
ISSN:

2617-6750

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