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Globalization in an Age of CrisisMultilateral Economic Cooperation in the Twenty-First Century$
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Robert C. Feenstra and Alan M. Taylor

Print publication date: 2014

Print ISBN-13: 9780226030753

Published to Chicago Scholarship Online: September 2014

DOI: 10.7208/chicago/9780226030890.001.0001

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Global Macroeconomic and Financial Supervision: Where Next?

Global Macroeconomic and Financial Supervision: Where Next?

Chapter:
(p.343) 9 Global Macroeconomic and Financial Supervision: Where Next?
Source:
Globalization in an Age of Crisis
Author(s):

Charles A. E. Goodhart

Publisher:
University of Chicago Press
DOI:10.7208/chicago/9780226030890.003.0010

Two key challenges impede progress in improving oversight, one political and one analytical. The political problem is the clash between national sovereignty and policymaking and the international linkages brought about by financial globalization. The analytical problem is that macroeconomics has made slow progress, and macro-finance models with plausible frictions, incompleteness, or imperfections, are still in their infancy. A key testing ground is the Euro area, where key architectural problems stand in the way, such as the lack of a fiscal union, asymmetric adjustment, no well-articulated lender of last resort, the national nature of most banks which hold “subsidiary sovereign” government debt. To prevent or mitigate crises, some authorities, most likely the IMF, may need to warn of, or try to impede, debt-augmenting imbalances ex ante, and may need greater powers to quickly restructure debts ex post. And despite major changes since the 1980s, the crisis shows that the Basel banking regime remains a work in progress, with serious shortcomings evident in the laxness and procyclicality of the current rules. Thus, the tasks ahead for macroprudential policy design remain challenging.

Keywords:   Financial globalization, Euro area, Fiscal union, Lender of last resort

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