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Global shocks and international policy coordination

Author

Listed:
  • Ashima Goyal

    (Indira Gandhi Institute of Development Research)

  • Rupayan Pal

    (Indira Gandhi Institute of Development Research)

Abstract
We argue emerging markets (EMs) have become large enough to make it in advanced economies (AEs) own interest to reduce negative spillovers to EMs. It follows the potential for international cooperation in macroeconomic and prudential policy increases. But entrenched perceptions and historical advantages are obstacles. These blocks are explored as well as possibilities in macroeconomic policies and in prudential regulation. Export of capital is a major way AEs earn a share in EM income. AE macroeconomic policy and volatile capital outflows from AEs are a source of negative spillovers for EMs, but preventive prudential regulation is not adequate in AEs. More regulation is likely to reduce short-term returns to capital flows but not long-term, since with fewer crises both AE and EM income streams would rise. Moreover, there is some evidence excess capital flow volatility has adverse effects on AEs themselves. It follows universal macro-prudential polices would benefit both country groups. International conventions should be refocused on reducing the probability of crises, instead of protecting creditors by ensuring they do not suffer a loss in case a crisis occurs. Major source countries should develop prudential regulation of their non-bank financial sectors, including commodity futures markets. The IMF should remove restrictions on pre-emptive implementation of capital flow management and its use before other measures.

Suggested Citation

  • Ashima Goyal & Rupayan Pal, 2022. "Global shocks and international policy coordination," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2022-008, Indira Gandhi Institute of Development Research, Mumbai, India.
    • Handle: RePEc:ind:igiwpp:2022-008
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    File URL: http://www.igidr.ac.in/pdf/publication/WP-2022-008.pdf
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    References listed on IDEAS

    as
    1. Krittika Banerjee & Ashima Goyal, 2020. "Monetary spillovers and real exchange rate misalignments in emerging markets," International Journal of Emerging Markets, Emerald Group Publishing Limited, vol. 17(2), pages 452-484, October.
    2. Ashima Goyal & Shruti Tripathi, 2012. "Regulations and price discovery: oil spot and futures markets," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2012-016, Indira Gandhi Institute of Development Research, Mumbai, India.
    3. Mr. Jonathan David Ostry & Mr. Atish R. Ghosh & Mr. Anton Korinek, 2012. "Multilateral Aspects of Managing the Capital Account," IMF Staff Discussion Notes 2012/010, International Monetary Fund.
    4. Olivier Blanchard, 2021. "Currency Wars, Coordination, and Capital Controls," World Scientific Book Chapters, in: Steven J Davis & Edward S Robinson & Bernard Yeung (ed.), THE ASIAN MONETARY POLICY FORUM Insights for Central Banking, chapter 4, pages 134-157, World Scientific Publishing Co. Pte. Ltd..
    5. Ashima Goyal & Akhilesh K. Verma, 2020. "Cross border flows, financial Intermediation and interactions of policy rules in a small open economy model," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2020-008, Indira Gandhi Institute of Development Research, Mumbai, India.
    6. Raghuram Rajan, 2015. "Competitive monetary easing: is it yesterday once more?," Macroeconomics and Finance in Emerging Market Economies, Taylor & Francis Journals, vol. 8(1-2), pages 5-16, July.
    7. Stijn Claessens, 2015. "An Overview of Macroprudential Policy Tools," Annual Review of Financial Economics, Annual Reviews, vol. 7(1), pages 397-422, December.
    8. Goyal, Ashima, 2002. "Reform proposals from developing Asia: finding a win-win strategy," MPRA Paper 30527, University Library of Munich, Germany.
    9. Buffie, Edward F. & Airaudo, M. & Zanna, Felipe, 2018. "Inflation targeting and exchange rate management in less developed countries," Journal of International Money and Finance, Elsevier, vol. 81(C), pages 159-184.
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    11. Eichengreen, Barry, 2013. "Currency war or international policy coordination?," Journal of Policy Modeling, Elsevier, vol. 35(3), pages 425-433.
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    Cited by:

    1. Ashima Goyal, 2023. "Lessons from outperformance in the Indian financial sector," Global Policy, London School of Economics and Political Science, vol. 14(5), pages 805-817, November.

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    More about this item

    Keywords

    International policy coordination; Covid-19; Quantitative easing; Capital flows; advanced economies; Emerging markets;
    All these keywords.

    JEL classification:

    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • F59 - International Economics - - International Relations, National Security, and International Political Economy - - - Other
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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