Must-Read: Brad Setser: G-3 Coordination Failures of the Past Eight Years?

Must-Read: Brad Setser: G-3 Coordination Failures of the Past Eight Years?: “I want to look back… [at the] coordination failures over the past eight years… https://www.cfr.org/blog/g-3-coordination-failures-past-eight-years-riff-coure-and-brainard

…one reason why I would argue that central banks should put a bit more weight on… international spillovers…. The global pivot to fiscal consolidation that was enshrined in the Toronto G-20 communique was wildly premature. It put a ton of pressure on monetary policy to support demand. Too much pressure. It slowed the global recovery. It was actually a pretty well-coordinated move, just in the wrong direction…. A second failure. In the face of a set of fairly common shocks—the slow global recovery, the premature fiscal pivot—G-3 monetary policies diverged a bit too much. The Fed famously and controversially did QE2 back in 2010…. The problem wasn’t that the Fed acted. It was that the other major central banks didn’t….

The other large advanced economies followed the U.S. with a lag. And that lag had exchange rate consequences…. The world would have been better off with more coordinated easing—with other central banks acting when the Fed acted, not with a lag—back in 2010 and 2011 and 2012. Instead it more or less got a coordinated fiscal tightening and an uncoordinated monetary offset. Call it a missed opportunity…. And now I worry that the Europeans have gotten perhaps a bit too fond of the policy mix that produced a weak euro…. Even now the eurozone’s domestic demand is far below what I consider a reasonable estimate of where it should be…