An Integrated Policy Framework (IPF) Diagram for International Economics
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Summary:
The Mundell-Fleming IS-LM approach has guided generations of economists over the past 60 years. But countries have experienced new problems, the international finance literature has advanced, and the composition of the global economy has changed, so the scene is set for an updated approach. We propose an Integrated Policy Framework (IPF) diagram to analyze the use of multiple policy tools as a function of shocks and country characteristics. The underlying model features dominant currency pricing, shallow foreign exchange (FX) markets, and occasionally-binding external and domestic borrowing constraints. Our diagram includes the use of monetary policy, FX intervention, capital controls, and domestic macroprudential measures. It has four panels to explore four key trade-offs related to import consumption, home goods consumption, the housing market, and monetary policy. Our extended diagram adds fiscal policy into the mix.
Series:
Working Paper No. 2024/038
Subject:
Exchange rate arrangements Exchange rates External debt Foreign exchange Imports International trade Land prices Prices
Frequency:
regular
English
Publication Date:
February 23, 2024
ISBN/ISSN:
9798400268274/1018-5941
Stock No:
WPIEA2024038
Format:
Paper
Pages:
122
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