Recently, monetary authorities have increasingly focused on implementing policies to ensure price stability and strengthen central bank independence. Simultaneously, in the fiscal area, market development has allowed public debt managers to focus more on cost minimization. This “divorce” of monetary and debt management functions in no way lessens the need for effective coordination of monetary and fiscal policy if overall economic performance is to be optimized and maintained in the long term. This paper analyzes these issues based on a review of the relevant literature and of country experiences from an institutional and operational perspective.

"A readable, balanced, and provocative view of the prospects for fruitful international economic cooperation. The papers are realistic: each discusses the difficulties involved in reaching cooperative solutions or procedures as well as the benefits of doing so. The discussion among the conference participants is lively, interesting, and insightful."--William H. Branson, Princeton University

This paper explores how fiscal policy can affect medium- to long-term growth. It identifies the main channels through which fiscal policy can influence growth and distills practical lessons for policymakers. The particular mix of policy measures, however, will depend on country-specific conditions, capacities, and preferences. The paper draws on the Fund’s extensive technical assistance on fiscal reforms as well as several analytical studies, including a novel approach for country studies, a statistical analysis of growth accelerations following fiscal reforms, and simulations of an endogenous growth model.

Contents: (1) National Security (NS) and the Congressional Interest; 21st Century Challenges to NS; (2) The Role of the Economy in U.S. NS; Macroecon. and Microecon. Issues in NS; (3) Economic Growth and Broad Conceptions of NS: Human Capital; Research, Innovation, Energy, and Space; (4) Globalization, Trade, Finance, and the G-20; Instability in the Global Economy; Savings and Exports; Boosting Domestic Demand Abroad; Open Foreign Markets to U.S. Products and Services; Build Cooperation with International Partners; Deterring Threats to the International Financial System; (5) Democracy, Human Rights, and Development Aid; Sustainable Development. Charts and tables. This is a print on demand publication.

Michael C. Webb explores a central question about postwar economic history: how has the growth of international markets affected the coordination of economic policy among nations? His analysis overturns the popular assumption that policy coordination has eroded as American hegemony has receded. Instead, he argues that the growing mobility of capital forced governments to abandon the strategies they had used in the 1950s and 60s to insulate monetary and fiscal policies from international influences, and to move toward more direct coordination of central economic strategies. Webb shows that since 1945 there has been a crucial shift in the pattern of international collaboration. He focuses on three types of adjustment policy: trade and capital controls, balance-of-payment lending and intervention in foreign-exchange markets, and monetary and fiscal policies. Noting that the first two types are no longer effective, he demonstrates that governments now rely more on monetary and fiscal policy coordination to regulate the global economy. As the expansion of international finance created greater turbulence in the global economy in the 1980s, the liberal system of international trade threatened to collapse. Webb examines in particular how the United States, Japan, and Germany took unprecedented steps to coordinate monetary and fiscal policies in the late 1980s and early 1990s, although domestic political obstacles—not any decline in U.S. power—limited the impact of this policy coordination. He concludes by assessing the effectiveness of these attempts to reconcile the goal of a stronger liberal system of economic exchange with the desire to maintain national autonomy.