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The Benefits of International Policy Coordination Revisited

Author/Editor: Jaromir Benes | Michael Kumhof | Douglas Laxton | Dirk Muir | Susanna Mursula
Authorized for Distribution: December 23, 2013
Electronic Access: Free Full Text (PDF file size is 568KB)
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

Summary: This paper uses two of the IMF’s DSGE models to simulate the benefits of international fiscal and macroprudential policy coordination. The key argument is that these two policies are similar in that, unlike monetary policy, they have long-run effects on the level of GDP that need to be traded off with short-run effects on the volatility of GDP. Furthermore, the short-run effects are potentially much larger than those of conventional monetary policy, especially in the presence of nonlinearities such as the zero interest rate floor, minimum capital adequacy regulations, and lending risk that depends in a convex fashion on loan-to-value ratios. As a consequence we find that coordinated fiscal and/or macroprudential policy measures can have much larger stimulus and spillover effects than what has traditionally been found in the literature on conventional monetary policy.
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Series: Working Paper No. 13/262
Subject(s): Fiscal policy | Macroprudential Policy | Monetary policy | Stabilization measures | International cooperation | Economic models
    Published:   December 23, 2013        
    ISBN/ISSN:   9781484326626/1018-5941   Format:   Paper
    Stock No:   WPIEA2013262   Pages:   53
    Price:   US$18.00
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