Here is S.C. over at Free Exchange:
Mr Osborne believes that substantive macroeconomic cooperation is neither desirable nor feasible. He’s right about the latter. He’s less right about the former.
Was the Fed merely the trigger for emerging-market troubles–troubles they should instead blame on their own shortcomings? The evidence for this view, Mr Osborne said, is that some emerging markets have been hit harder than others. That is true, and instructive. But it does not acquit the Fed. Its decisions can and do hurt emerging economies. Yes, their injuries vary. But that does not necessarily mean the injuries were self-inflicted.
And does the pursuit of national resilience add up to global resilience? Not necessarily. There are occasions when one country’s attempts at good housekeeping make it harder for other countries to be domestic goddesses themselves.
Let’s think about the phrase “attempts at good housekeeping.” The Fed’s tapering moves seem to have hurt some emerging markets. How do we know this? One piece of evidence is that EM stock markets fell on the news. But if that evidence is reliable (and I suspect it is) isn’t it also worth noting that tapering rumors hurt US stock prices as well? Does this mean the decision to taper will hurt the US economy?
In my view the answer is pretty clearly “yes,” although I base that on other factors as well, not just US stock prices. If S.C. had said “good housekeeping” rather than “attempts at good housekeeping,” I would have been much more skeptical of the claim.
In my view the so-called “one-size-fits-all” problem is greatly exaggerated. I don’t deny it exists, but in the majority of cases I’ve looked at policies that have negative effects on other countries also have negative effects on the home country. The ECB’s tight money policy has certainly been bad for Greece and Spain, but it’s quite likely that it has also harmed Germany and the Netherlands.
When the Fed makes a dramatic move, US stock prices often respond strongly. Does anyone recall a single clear case where the response of foreign equity markets went in the opposite direction from US markets? I can recall lots of cases where the foreign market responses were obviously in the same direction, and a few that were perhaps ambiguous. But overall I’d say that “what’s good for the US is good for the EMs” is a reasonable assumption to make. I’d have to see some pretty strong evidence to the contrary to overcome the presumption that the US should focus on keeping its own house in order, and should not get involved in international cooperation on monetary policy. Can anyone cite a clear case (under floating rates) where cooperation was needed?
On the other hand many people who favor cooperation are also opposed to the recent tapering decision. I believe they are right about the tapering, but that’s because I suspect the decision also hurt the US economy.