International Coordination and Precautionary Policies
NBER Working Paper No. 21793
This paper highlights the rare conditions leading to international cooperation, and the reasons why eliciting this cooperation may be beneficial in preventing adverse tail shocks from spiraling into global depressions. In normal times, deeper macro cooperation among countries is associated with welfare gains akin to Harberger’s second-order magnitude triangle, making the odds of cooperation low. When bad tail events induce imminent and correlated threats of destabilizing financial markets, the perceived losses have a first-order magnitude of terminating the total Marshalian surpluses. The apprehension of these losses in times of peril may elicit rare and beneficial macro cooperation. We close the paper by overviewing the obstacles preventing cooperation, and the proliferation of precautionary policies of emerging market economies as a second-best outcome of limited cooperation.
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Document Object Identifier (DOI): 10.3386/w21793
Published: Joshua Aizenman, 2016. "International Coordination and Precautionary Policies," International Economic Journal, vol 30(3), pages 379-391.
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