The Benefits of International Policy Coordination Revisited

By Jaromir Benes, Michael Kumhof, Douglas Laxton, Dirk V Muir, Susanna Mursula

December 23, 2013

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Jaromir Benes, Michael Kumhof, Douglas Laxton, Dirk V Muir, and Susanna Mursula. The Benefits of International Policy Coordination Revisited, (USA: International Monetary Fund, 2013) accessed September 18, 2024

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.

Subject: Accommodative monetary policy, Capital adequacy requirements, Financial sector policy and analysis, Financial services, Fiscal policy, Fiscal stimulus, Macroprudential policy, Monetary policy, Real interest rates

Keywords: Accommodative monetary policy, Asia and Pacific, Capital goods, External finance, Fiscal Multipliers, Fiscal Policy, Fiscal policy rule, Fiscal stimulus, GDP effect, Global, Interest rate floor, International Policy Coordination, International Spillovers, Macrofinancial Linkages, Macroprudential Policy, Monetary policy, Monetary policy response, Nonlinearities, Physical capital, Potential GDP, Present discounted value, Prudential Regulation, Real asset, Real interest rate, Real interest rates, Real value, Stimulus program, WP

Publication Details

Pages:

53
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2013/262
Stock No:

WPIEA2013262
ISBN:

9781484326626
ISSN:

1018-5941

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