Cuadernos de la CEPAL 98 Alicia Bárcena Executive Secretary Antonio Prado Deputy Executive Secretary Jürgen Weller Officer-in-Charge Division of Economic Development Ricardo Pérez Chief Documents and Publications Division This document has been prepared by Rodrigo Cárcamo-Díaz, Economic Affairs Officer at the Economic Commission for Latin America and the Caribbean (ECLAC), within the framework of the Macroeconomic Dialogue Network Project Second Stage (REDIMA II). The author is very grateful for the inputs and commentaries of Alberto Barreix, Alfredo Blanco, Andrés Solimano, Christian Ghymers, Enrique Alberola, Gregor Heinrich, John Goddard, John Schindler, Johny Gramajo, Juan Falconí, Manuel Iraheta, Marcel Vaillant, Martin Ranger, Miguel Torres, Omar Bello, Ramón Pineda, Vladimir López, Ximena Romero and others he might have inadvertently forgotten. Any remaining errors are the sole responsibility of the author. This document has been produced with the financial assistance of the European Union. The views expressed herein are those of the author only and can in no way be taken to reflect the official opinion of the United Nations or the European Union. http://europa.eu.int Cover design and layout: Andrés Hannach United Nations Publication ISBN: 978-92-1-021086-7 E-ISBN: 978-92-1-055363-6 LC/G.2516-P Sales No. E.12.II.G.11 Copyright © United Nations, January 2012. All rights reserved Printed in United Nations, Santiago, Chile Applications for the right to reproduce this work are welcome and should be sent to the Secretary of the Publications Board, United Nations Headquarters, New York, N.Y. 100017, United States. Member States and the governmental institutions may reproduce this work without prior authorization, but are requested to mention the source and inform the United Nations of such reproduction. Macroeconomic cooperation for uncertain times: The REDIMA experience 3 Contents Foreword............... ................................................................................................ 7 Chapter I Macroeconomic cooperation for uncertain times: An overview ................. 11 A. Introduction ....................................................................................... 11 B. Two views on international macroeconomic cooperation .......... 13 C. A world of uncertainty .................................................................... 15 D. Policy responses to uncertainty: The role of international cooperation for learning ................................................................... 19 E. Fostering “cooperation for learning” ............................................. 23 1. A case study: The REDIMA project ........................................... 24 2. The role of international organizations: Concepts and lessons from the REDIMA Project .................................................. 25 F. “Cooperation for learning” and economic crises ......................... 28 1. “Cooperation for learning” and an economic crisis: ex ante ............................................................................................ 29 2. “Cooperation for learning” and an economic crisis: ex post ............................................................................................. 30 3. Negative feedback effects from economic crises to “cooperation for learning” networks ....................................... 31 G. Conclusion ......................................................................................... 32 Chapter II The traditional framework for analysing macroeconomic policy cooperation .............................................................................................. 35 A. Macroeconomic policy cooperation: A look at the concepts ....... 35 B. A simple model of monetary policy coordination ....................... 38 4 ECLAC C. Policy relevance of the traditional policy coordination approach for Latin America ............................................................. 40 1. The size of macroeconomic policy transmission channels .... 40 2. Implementation issues ................................................................ 47 Chapter III Macroeconomic policy cooperation as social learning in networks ........... 57 A. A different approach to policy cooperation .................................. 57 B. Uncertainty and policymaking ....................................................... 59 C. Addressing uncertainty .................................................................... 64 D. International cooperation in networks........................................... 67 E. A model of learning from others: Bala and Goyal (1998) ........... 71 F. Discussion of the model ................................................................... 73 1. Optimistic beliefs, speed of learning and its form .................. 73 2. “Peer review” and the model .................................................... 75 3. Limitations of the model ............................................................ 76 G. Fostering learning and cooperation: the role of international organizations .............................................................. 79 1. Technical assistance: Providing tools for effective learning .. 79 2. Signal provision .......................................................................... 81 3. Creating and supporting networks: addressing market failure .............................................................................. 84 Chapter IV A case study of “cooperation for learning”: the Macroeconomic Dialogue Network (REDIMA) project ............................................................ 87 A. The dynamics of the “state of the world” ...................................... 87 1. The first period: Boom in commodity prices ........................... 88 2. The second period: Supply-side inflation and real exchange rate appreciation ........................................................ 98 B. Applying theory: A real-world “cooperation for learning” experience ......................................................................................... 102 C. The emergence of sub-regional links for macroeconomic cooperation in South America and REDIMA I ........................... 103 D. Focus on regional “cooperation for learning”: REDIMA II ...... 106 E. The tools used by REDIMA .......................................................... 107 1. Link subsidies ............................................................................ 107 2. Coordination services ............................................................... 108 3. Direct information and analysis provision .............................111 4. Identification of third-party inputs ......................................... 112 F. Implementation challenges and responses ................................. 113 1. Imperfect internal communication within policymaking institutions .................................................................................. 113 2. The social nature of the networks and node heterogeneity .............................................................................. 117 Macroeconomic cooperation for uncertain times: The REDIMA experience 5 G. Results ............................................................................................... 119 1. Network creation and strengthening .................................... 120 2. Concrete policy results of learning ......................................... 124 H. Other macroeconomic learning networks ................................... 128 1. The Economic Development and Review Committee of the OECD ............................................................................... 129 2. The Economic Review and Policy Dialogue of the ASEAN + 3 Group ..................................................................... 131 I. Long-term sustainability of “cooperation for learning” networks ........................................................................................... 133 Appendices Appendix A: The Gosh and Masson (1994) model ..................................... 137 Appendix B: Additive and multiplicative uncertainty in the Ghosh and Masson (1994) model ................................................................... 143 Appendix C: The essentials of the Bala and Goyal (1998) model ............. 145 Bibliography...... ................................................................................................ 149 Tables and figures Tables II.1 Total exports and imports ...................................................................... 42 II.2 Primary exports and imports ................................................................ 44 II.3 Non-primary exports and imports ....................................................... 45 Figures I.1 A two-period learning process .............................................................. 21 II.1 Non-financial public sector debt in Latin America, 2003-2009 ........ 56 IV.1 Terms of trade in Latin America, 1999-2009 ........................................ 89 IV.2 Selected commodity prices, 2005-2009 ............................................... 89 IV.3 Hydrocarbon revenues of the consolidated public sector of the Plurinational State of Bolivia, 2003-2009 ............................................. 90 IV.4 Fiscal policy in MERCOSUR: Simple average of country results, 2003-2008 ..................................................................... 91 IV.5 Fiscal policy in the Andean Community: Simple average of country results, 2003-2008 ....................................................................