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

Tamim Bayoumi

No 2015/156, IMF Working Papers from International Monetary Fund

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: WP; monetary policy; policy; domestic policy; aftermath; Domestic Policy Cooperation; Central Bank Independence; Macroprudential Policy; monetary policy maker; policy discussion; macro-prudential policy; coordination literature; policy coordination; policy area; monetary policy process; monetary policy decision; policy level; policy option; macroeconomic Policy cooperation; Structural policies; Financial sector stability; Structural reforms; Global (search for similar items in EconPapers)
Pages: 22
Date: 2015-07-15
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