Macroeconomic Interdependence and the Coordination of Economic Policy

Abstract

In the 1970s and 1980s, all the Western economies experienced periods of slow or negative growth, high inflation and high unemployment. Although the position has now improved for inflation, the persistence of high unemployment, fear of inflation and faltering growth rates, plus trade and budget deficits in the USA (and debt or trade surpluses elsewhere), has raised doubts whether a return to full employment and ‘normal’ growth is possible in the near future. The self-steering properties of the world economy, and the endogenous policy responses of the major economies in particular, have been sharply criticised for being inadequate to bring the world out of recession and maintain the kind of growth enjoyed in earlier periods.