Friday, August 16, 2013

Economics policy coordination: Looking for higher policy effectiveness

The financial crisis which started five years ago (2008), has challenged the main stream of macroeconomic policy and new paradigm are on the rise. In such a cases, it was used to think that each policy,(monetary or fiscal policies) properly focused on its target , would get the economy back on track. However recent experience has shown that it is not enough to implement economic policies. When it comes to implement such a policies, It has become more relevant to take into account the timing, coordination with other policies, spillover effects, expectations changes, complementary reforms, all at once!.- In its august 1st report , the IMF urges concerted policy action to reduce risk to global growth ( In fact ,concerted policy action to avert the risk facing global economy are estimated to have saved 2-5 % of global output, and if world ´s largest economies(“systemic 5”),could improve policy coordination, they would lift global GDP over the long run by as much as 3%., The larger volume of trade and financial linkages in the global economy, makes spillover effects more evident for implementing policies. Besides ,the current situation which has been characterized as “unstable disequilibrium” ( , requires more than just policies: It requires to go beyond the mechanics text book cases, it requires more inclusive approaches . Let takes the case of the quantitative easing (QE) applied so far. The evidence (IMF report mentioned above), finds clear evidence of positive growth spillover, but it also make clear the risk attached to the exit of such a policy : Too soon would impact growth negatively , but too late would induce asset bubbles and imbalances .In Europe, concerning the design of structural policies ,the chances are for more integration or fragmentation. Thus, there are also dilemmas attached to policy options, which demands for complementary reforms whether these policies are really to become effective .- What are the implication for global economy?. a.- In the short run, policies coordination matter. b.- In the long run, structural reforms improve the effectiveness of policy coordination(Besides, It boost stronger positive spillover effects).- c.- Macroeconomic policies isolated are not enough for effectiveness purposes. d.- The spillover effects, are important constraint for the design of economic policies. e.- Game theory has something to say about policy design(