Book Chapter
Global Macroeconomic Management

The most important development in the global macroeconomic system over the past few decades has been the liberalisation of international capital markets that got underway in the 1970s. This sea of change from the Bretton Woods system has had enormous consequences for both developed and developing economies. This chapter begins by recalling the history of world capital markets — especially changes that have occurred since World War II. One important outcome has been a marked increase in the volatility of capital movements and asset prices, amplified by international contagion. In forward markets, conventions about the future determine these expectations. International payments flows have been profoundly affected by liberalisation, and the peculiar role the American economy plays in regulating them. How shifting conventions led to crises in developing economies is discussed. A stylised model of cycles of capital movements and macroeconomic performance is sketched. The chapter closes with a review of international financial regulation and governance.