An Integrated Policy Framework (IPF) Diagram for International Economics

122 Pages Posted: 29 Feb 2024

See all articles by Suman Sambha Basu

Suman Sambha Basu

International Monetary Fund (IMF)

Gita Gopinath

International Monetary Fund (IMF); Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Abstract

The Mundell-Fleming IS-LM approach has guided generations of economists over the past 60 years. But countries have experienced new problems, the international finance literature has advanced, and the composition of the global economy has changed, so the scene is set for an updated approach. We propose an Integrated Policy Framework (IPF) diagram to analyze the use of multiple policy tools as a function of shocks and country characteristics. The underlying model features dominant currency pricing, shallow foreign exchange (FX) markets, and occasionally-binding external and domestic borrowing constraints. Our diagram includes the use of monetary policy, FX intervention, capital controls, and domestic macroprudential measures. It has four panels to explore four key trade-offs related to import consumption, home goods consumption, the housing market, and monetary policy. Our extended diagram adds fiscal policy into the mix.

Keywords: integrated policy framework, monetary policy, foreign exchange intervention, capital controls, macroprudential policy, fiscal policy

JEL Classification: E58, F41, G28

Suggested Citation

Basu, Suman Sambha and Gopinath, Gita, An Integrated Policy Framework (IPF) Diagram for International Economics. IMF Working Paper No. 2024/038, Available at SSRN: https://ssrn.com/abstract=4741918 or http://dx.doi.org/10.5089/9798400269233.001

Suman Sambha Basu (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Gita Gopinath

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Harvard University - Department of Economics ( email )

Littauer Center
Cambridge, MA 02138
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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