Cross-Atlantic implications of the new US policy mix

Marco Buti

Journal of Policy Modeling, 2018, vol. 40, issue 3, 559-570

Abstract: This paper will assess implications of shifting policy mix in the US for global imbalances and adjustment, with a focus on the euro area, using the European Commission’s QUEST model. Following early market euphoria after the elections on the account of expected “decisive” pro-market policies, uncertainty regarding the composition and timing of the new administration's economic policies has been the norm. Early proposals included a substantial fiscal stimulus which, combined with a tightening monetary stance, was expected to drive up long-run interest rates and the dollar, leading to widening global imbalances and potential instability. Today the expansionary impact of the fiscal plans is the subject of a heated debate while monetary policy continues to tighten steadily and risks related to a protectionist trade agenda remain pronounced. Contrary to initial expectations, real interest rates and the dollar have weakened, while global imbalances persist. Addressing policy and structural needs in the US – and abroad – is a necessary condition to rein in global imbalances. In this context, this paper will discuss the role of the G20/G7 to promote a coordinated policy approach and in particular to what extent the G20/G7 can deal with the transition from crisis management to the balancing of heterogeneous preferences among the policy makers to promote global growth and stability.

Keywords: Global imbalances; Policy mix in the US; Adjustment in the Eurozone; Coordinated policy approach (search for similar items in EconPapers)
JEL-codes: E61 E63 F42 F53 (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jpolmo:v:40:y:2018:i:3:p:559-570

DOI: 10.1016/j.jpolmod.2018.02.011

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