Monetary Policy Cooperation and Coordination: An Historical Perspective on the Importance of Rules

Friday, May 6, 2016

Economics Working Paper WP16112

Abstract: This paper addresses the ongoing debate between those who advocate for central banks to take coordinated action to reduce the international spillovers from their domestic policy actions; and those who argue that the international spillovers from recent monetary policy actions reflect the deviations from rules based monetary policy. We take an historical perspective and examine the experiences of international cooperation and coordination since the late nineteenth century across several exchange rate regimes: the classical gold standard 1880-1914; the Interwar gold exchange standard 1924 to 1936; the Bretton Woods System 1944 to 1973; and the Managed Float 1973 to the present. We find that in monetary regimes which are rules based cooperation was most successful and less so in regimes based on discretion or poorly grounded rules. We find less success for more elaborate schemes of coordination.

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