CAPITAL MOBILITY AND THE POSSIBILITIES FOR INTERNATIONAL-POLICY COORDINATION

When capital is internationally mobile, small differences in macroecon omic policies generate massive payments imbalances that cannot be mana ged successfully with the policy tools used during the Bretton Woods e ra. Monetary and fiscal policy coordination is needed to stabilize the international economy, but is difficult to achieve. This article uses insights from the theoretical literature on international cooperation to account for characteristics of policy coordination in recent years . Examination of the strategic situation helps to explain why governme nts have rejected proposals for a rules-based regime (e.g., strict mul tilateral surveillance using quantitative indicators) yet have coordin ated policy adjustments on an ad hoc basis in response to crises. A so lution to the strategic problem - in which there is one mutually adver se outcome (no adjustment by any government) and a number of Pareto-op timal outcomes preferred by different governments - depends on the exe rcise of power, Consideration of theories about hegemony and cooperati on suggests that the U.S. continues to act as a hegemon in this area, albeit of the coercive rather than benevolent sort. International theo ries of cooperation, however, neglect the domestic policy making pract ices and institutions that pose the central problems for international policy coordination.