After the Fall: Lessons for Policy Cooperation from the Global Crisis

IMF Working Papers, June 10, 2014

Source details

Canonical URL: After the Fall: Lessons for Policy Cooperation from the Global Crisis

Author: Tamim Bayoumi
Date: June 10, 2014
Core observation: With the world facing the largest and most synchronized plunge in output of the postwar era, policy makers banded together to find solutions.
Paper focus: Lessons from what did—and did not—occur in the area of policy cooperation since the crisis.
Central contrast:
- Cooperation outcomes were weaker over time in areas such as macroeconomic policies, where institutional procedures were less well defined and there were disagreements over spillovers.
- Cooperation was most effective where there was a consensus that policies could avoid the risk of highly detrimental outcomes and where institutional arrangements were more concrete (principally trade; also bank capital buffers, IMF resources, and derivatives exchanges).

Effectiveness of cooperation varies by policy area:
- Macroeconomic policies: outcomes seem to be weaker over time owing to less well defined institutional procedures and disagreements over spillovers.
- Trade; bank capital buffers; IMF resources; derivatives exchanges: cooperation was more effective where consensus existed and institutional arrangements were concrete.
Emphasis on the asymmetric consequences of cooperation failure:
- It may be more fruitful to focus on the potential for major costs from a lack of cooperation, rather than the minor gains from fuller coordination.

Focus on the potential for major costs from a lack of cooperation, rather than the minor gains from fuller coordination.
Strive for more consensus on estimated spillovers.
Convince policy-makers that the costs of loss of cooperation are large.
Focus on building better and more enduring institutional arrangements.

Subjects: Banking, Commercial banks, Emerging and frontier financial markets, Financial institutions, Financial markets, Financial sector policy and analysis, Financial sector stability, Fiscal policy, Fiscal stimulus
Keywords: C. Policy mix, central bank, central bank swap lines, Commercial banks, domestic policy, Emerging and frontier financial markets, Europe, Fed swap lines, Financial sector stability, Fiscal stimulus, G20 industrial nations, Global, institutuinal coarregements, market, policy, Policy cooperation, policy spillovers, WP