Monetary Coordination

 

Rules-based VS. discretion-based monetary policy

 

More to read on this issue :

 

• H. James, Project Syndicate, "The paradox of Central Bank cooperation" (2013). Read more...

• H. James, VoxEu, "International cooperation and central banks" (2013). Read more...

• J. Zumbrun, Wall Street Journal, "What the World needs now is nice monetary policy, John Taylor says" (2014). Read more...

• J.  Taylor, BIS, "International monetary policy coordination: past, present and future" (2013). Read more...

• G7 Finance Ministers and Central Bank Governors, Financial Times,  "G7 fails to defuse currency tensions" (2013). Read more...

 

Financial safety and spillovers management

 

As Blanchard points out: "The last five years have been a reminder of the importance of interconnections and risks in the global economy. They have triggered intense discussions on the optimal way to combine fiscal, monetary, and financial policies to deal with spillovers, and on the need and the scope for coordination of such policies".

 

As an illustration, a BIS working paper provides further evidence on how US unconventional monetary policy over the past five years transmitted to Asia through "low domestic bond yields and rapid growth of domestic bank credit". Although financial integration does not put control of national monetary authorities over short-term policy rates at risk, it does so regarding long-term rates.

 

More to read on this issue :

 

• Paolo Manasse, VoxEU, "Time for international monetary coordination" (2012) . Read more...

• O. Blanchard, J. D Ostry, At. R Ghosh,  iMF Direct, "International Policy Coordination: The Loch Ness Monster" (2013), Read more...

• E. Truman, VoxEU, "Enhancing the global financial safety net through central-bank cooperation" (2013). Read more...

• Eichengreen and al., Committee onInternational Economic Policy and Reform "Rethinking CentralBanking" (2011). Read more...

• Eichengreen and al., Vox EU, "Rethinking central banking" (2011). Read more...

• O. Blanchard, L. Laeven, E. Vesperoni, iMFdirect, "Understanding spillovers" (2014). Read more...

• J. Cohen-Setton, Bruegel, "The spillovers of fiscal and monetary policies" (2014). Read more...

• Sohrab Rafiq, IMF, "The Effects of U.S. Unconventional Monetary Policy on Asia Frontier Developing Economies" (Jan 2015). Read more...

• Masahiro Kawai, Asian Development Bank, "International Spillovers of Monetary Policy: US Federal Reserve’s Quantitative Easing and Bank of Japan’s Quantitative and Qualitative Easing" (Jan 2015). Read more...

• Kenneth ROGOFF, Journal of International Economics, "Can International Monetary Policy Cooperation Be Counterproductive?" (1984). Read more...

• Zheng Liu & Evi Pappa, ECB, "Gains from International Monetary Policy Coordination: Does it Pay to Be Different?" (2005). Read more...

 

Monetary and currency wars

 

More to read on this issue :

 

Nouriel Roubini (Project Syndicate) fears Japan's new wave of QE will unleash another currency war especially in the Asian region. An optimal policy-mix response to the Japanese disinflationary momentum would have substituted  monetary easing and fiscal austerity for public investment spending.

 

El-Erian (Project Syndicate) considers currency wars may last for a longer period than expected as long as two conditions are met: (1) US tolerance regarding the continuing appreciation of the dollar and (2) markets' acceptance to get exposed to risks that are disconnected from economies'fundamentals.

 

• Bénassy-Quéré and al, French Council of Economic Analysis, "The Euro in the ‘Currency War" (2014). Read more...

• Rakesh Mohan and Muneesh Kapur, IMF Working Paper, "Monetary Policy Coordination and the Role of Central Banks" (2014). Read more...

• M S Mohanty, BIS, "The transmission of unconventional monetary policy" (2014). Read more...

 

Strains on coordination

 

Coeuré (November, 14th 2014) argues for the case of a European coordinated policy mix to mitigate side effects of cross-border spillovers while leveraging positive externalities. Cooperation in the Euro Area takes place in a particular context that has a two-fold imperative: fight against low inflation and  necessity for structural reforms. "For a central banker from the euro area, the notion of policy coordination and cooperation has a somewhat different meaning than it does for policymakers from other advanced economies. On the one hand, it has a global dimension capturing the difficult questions of whether and how to align monetary policies so as to achieve an optimal international policy mix. But on the other hand, it has a meaning as well in our domestic environment: within the euro area we are also involved, in a sense, in international policy cooperation. We have to achieve price stability in an environment of different national fiscal and structural policies". Read more...

 

Fabrizio Saccomani (BIS, 2015) pinpoints the dangers of a come-back of financial fragmentation and protectionism on the international stage. Indeed, countries rely increasingly more on macroprudential measures and foreign exchange interventions without global consultation to mitigate monetary spillovers and subsequent destabilizing impacts on key macroeconomic aggegates. In order to assure financial stability, a multilateral forward guidance could be put in place through coordination of macroeconomic policies, recast  of the international monetary system and shared communication to global markets to "minimize the risks of disturbances". The first step to be undertaken should be to complete the regulatory agenda as Caruana argues (BIS, 2015).

 

Carlson and al. (BIS, 2015) take the same firm line arguing both liquidity regulations and consensus on the benefits of Central Banks acting as lender of last restort should be agreed on the international stage.

 

More to read on this issue :

 

• Zhu. M, iMF Direct,  “You can’t buy reputation and expertise, but you can acquire it through networking.” (2014). Read more...

• O. Blanchard, J. D Ostry, At. R Ghosh, VoxEU: "Overcoming the obstacles to international macro policy coordination is hard"  (2013) Read more...