Posted

July 16, 2015 12:25:51 PM

Date

2015-07

Author

Tamim Bayoumi

Affiliation

Strategy, Policy, and Review Department, IMF

Title

The Dog That Didn’t Bark : The Strange Case of Domestic Policy Cooperation in the “New Normal”

Summary /
Abstract

This paper examines domestic policy cooperation, a curiously neglected issue. Both international and domestic cooperation were live issues in the 1970s when the IS/LM model predicted very different external outcomes from monetary and fiscal policies. Interest in domestic policy cooperation has since fallen on hard intellectual times—with knock-ons to international cooperation—as macroeconomic policy roles became highly compartmentalized. I first discuss the intellectual and policy making undercurrents behind this neglect, and explain why they are less relevant after the global crisis. This is followed by a discussion of: macroeconomic policy cooperation in a world of more fiscal activism; coordination across financial agencies and with macroeconomic policies; and how structural policies fit into this. The paper concludes with a proposal for a “grand bargain” across principle players to create a “new domestic cooperation.”

Keywords

Domestic Policy Cooperation, Ce ntral Bank Independence, Macroprudential Policy

URL

http://www.imf.org/external/pubs/ft/wp/2015/wp15156.pdf

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