successful international economic policy coordination
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Upon your return home, you receive an invitation to speak to a class at the local high school. You are to be part of a panel of three local people considered to have experience in international business. The question you are assigned to answer is "What are some obstacles to successful international economic policy coordination?"
In your own words, please post a response to the Discussion Board and comment on other postings. You will be graded on the quality of your postings.
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What are some obstacles to successful international economic policy coordination? this is for economic policy.
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International economic policy coordination is an idea that is not nowadays at the top of the international agenda. The usual idea these days is that if each country pursues its own national interests, then the world will do as well as possible.
Policy coordination ought at this juncture to be directed overwhelmingly at securing an adjustment of the US balance of payments deficit without the world economic crisis. As the textbooks tell us, adjustment requires both expenditure-changing policies (expenditure-reducing policies in the deficit countries and expenditure-increasing policies in the surplus ones) and expenditure-switching policies (nominal appreciations of the currencies of the surplus countries and depreciations in the deficit countries). That requires both securing complementary changes in demand and a concerted realignment of those currencies (primarily the Asian ones) that have not yet adjusted to the new realities.
Achieving adjustment of the US balance of payments while maintaining world prosperity is going to require not just changes in exchange rates but complementary changes in the generation of world demand. This is going to need demand restraint in the United States, which most economists believe would be best accomplished by tightening fiscal policy. Given the reluctance of the Bush administration to admit that there is a need for actions beyond those that have already been announced (which will supposedly halve the fiscal deficit by 2008), it seems all too likely that the needed demand restraint will only be applied as inflation accelerates, by the Fed rather than the Treasury. This implies that it is likely to happen undesirably late, and with the possibility of an attenuated impact ...
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- BCom, SGTB Khalsa College, University of Delhi
- MBA, Rochester Institute of Technology
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