Macroeconomic Management When Policy Space is Constrained: A Comprehensive, Consistent and Coordinated Approach to Economic Policy

Vitor Gaspar, Maurice Obstfeld, Ratna Sahay, Douglas Laxton, Dennis Botman, Kevin Clinton, Romain Duval, Kotaro Ishi, Zoltán Jakab, Laura Jaramillo, Constant Lonkeng Ngouana (), Tommaso Mancini-Griffoli, Joannes Mongardini, Susanna Mursula, Erlend Nier, Yulia Ustyugova, Hou Wang and Oliver Wuensch

No 2016/009, IMF Staff Discussion Notes from International Monetary Fund

Abstract: The recovery in GDP growth since the global financial crisis has been halting and weak. Concern is widespread that countercyclical policies have run out of space or lack the power to raise growth or deal with the next negative shock. This note argues that room exists for effective policies and that it should be used if appropriate. The most promising route involves a comprehensive, consistent, and coordinated approach to policy making. Comprehensive policy actions within a country exploit synergies, making the whole greater than the sum of parts. Consistent policy frameworks anchor long-term expectations while allowing decisive short- to medium-term accommodation whenever necessary. Coordinated policies across major economies amplify the helpful effects of individual policy actions through positive cross-border spillovers. The findings of this paper indicate that policy coordination adds particular value if the current approach falls short of reviving growth, or in the event of a further downward shock.

Keywords: SDN; debt ratio; global economy; aggregate demand; labor market; reaction function; monetary policy; fiscal policy; incomes policy; structural reforms; financial sector policies; Canada; Japan; rate of inflation; transmission mechanism; monetary policy transmission; demand management; forecast interest rate path; interest rate path; inflation expectation; policy interest rate rate constant; demand shock; monetary policy support; Inflation; Fiscal stimulus; Accommodative monetary policy; Financial statements; Global; Asia and Pacific (search for similar items in EconPapers)
Pages: 61
Date: 2016-09-28
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Citations: View citations in EconPapers (5)

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