Joshua Aizenman, 03 January 2016

The Global Crisis renewed debate on the benefits and limitations of coordinating international macro policies. This column highlights the rare conditions that lead to international cooperation, along with the potential benefits for the global economy. In normal times, deeper macro cooperation among countries is associated with welfare gains of a second-order magnitude, making the odds of cooperation low. When bad tail events induce imminent and correlated threats of destabilised financial markets, the perceived losses have a first-order magnitude. The apprehension of these losses in times of peril may elicit rare and beneficial macro cooperation.

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