An Integrated Policy Framework (IPF) Diagram for International Economics

Suman Basu and Gita Gopinath

No 2024/038, IMF Working Papers from International Monetary Fund

Abstract: 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.

Keywords: integrated policy framework; monetary policy; foreign exchange intervention; capital controls; macroprudential policy; fiscal policy; IPF diagram; FX intervention; shallow foreign exchange; international economics; supply curve; borrowing constraint; Exchange rate arrangements; Exchange rates; Imports; Land prices; Global (search for similar items in EconPapers)
Pages: 122
Date: 2024-02-23
New Economics Papers: this item is included in nep-cba, nep-ifn and nep-opm
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