International monetary problems moved from the back pages to the front pages long ago, and yet, despite much attention, they continue to trouble national leaders, entrepreneurs, international officials and scholars, and to affect the average citizen. World payments imbalances and currency fluctuations have substantial domestic economic effects, give rise to protectionist pressures, put unwelcome heat on politicians, and raise fears that resulting governmental conflicts could unravel political-security relations. Thus, large and small nations meet in various fora, from bilateral sessions through the Group-of-Seven powers to the annual IMF conference, to negotiate proposed changes.

This paper stresses the importance of taking domestic economic structures and political pressures into account when considering issues of international macroeconomic policy coordination. The existence of domestic biases can cause policy coordination to increase rather than reduce macroeconomic instability. The paper offers a survey of the literature on national macroeconomic policy preferences and inflation unemployment tradeoffs. While this research is still in its infancy, it is clear that there are important differences across countries which must be taken into account in designing coordination strategies.

This essay analyzes the relationship between international investment interests and foreign economic policy. The first step and level of analysis looks at nation-states as the relevant actors, and claims that a country's international investment position tends to affect its international economic preferences in ways that are easily understood and anticipated. Countries' international asset positions often have a predictable impact on their policies toward international monetary relations, cross-border investment, and trade.The second step and level of analysis looks inside national societies at the international asset positions of various domestic groups. It argues that sectors with varying interests related to their international investment positions contend for influence over national policy. The economic circumstances of each sector lead to sectoral policy preferences with predictable implications for domestic bargaining over foreign economic policy. The general argument is applied briefly to a number of modern creditor countries and sectors, most prominently the United States after World War Two.

Our most prominent theories of international bargaining miss elements essential for understanding national bargaining strategies and international outcomes. In particular they lack sufficient mechanisms of change over time. A focused contrast between the London economic and monetary conference of 1933 and the Bretton Woods conference of 1944 suggests three new dynamic hypotheses. (1) Changes, especially extreme ones, in national market conditions are likely to shift the state's bargaining strategy sharply even if its relative international position has not changed. A slump will produce a more exploitative strategy, while a boom will encourage either a passive or an expansive strategy. (2) Painful national experience running contrary to prevailing policy ideas is likely to discredit those ideas among politicians and officials, turn them toward alternative doctrines, and lead to corresponding strategy changes. The ideas most likely to spread politically are ones which had predicted the currrent problem, and those whose advocates mount the most sophisticated publicity campaign. (3) International technical disagreement can pose a decisive impediment to intergovernmental agreement, while in some conditions at least technical convergence facilitates official agreement.

US exchange rate policy shifted in 1985 from unilateralist nonintervention to actively promoting dollar depreciation and multilateral cooperation. Pressures from producer interests, particularly multinational companies making manufactured goods, and from sympathetic members of Congress were the most important of multiple forces pushing the US Treasury toward dollar depreciation. Once the Treasury had chosen an activist course, a multilateral strategy had several benefits over a unilateral approach to depreciation. It could better counter the immediate threat to Administration trade policy from Congress, orchestrate depreciation, strengthen Treasury's influence within Washington and shift the burden of adjustment away from US fiscal policy, then frozen, onto other governments. When the trade account is in balance, individual policymakers have flexibility in determining exchange rate policy. But when large trade deficits arise, the domestic political pressures of trade-exposed sectors will dominate personalities and ideas.

Devaluations are traumatic events. The historical record shows that a devaluation doubles the probability that a ruling group would be replaced and triples the likelihood that the Minister of Finance would be relieved. Yet in November 1978, Indonesia devalued its currency by 50 percent when observers were not predicting a balance of payments crisis in the near future. The devaluation was undertaken to effect an income transfer to the countryside and the Outer Islands, the centers of traditional agricultural export industries. Since this action contradicts the logic of the dominant models of the Indonesian state, we propose that authoritarian corporatism is a more accurate characterization of the state-society relationship. The economic conditions in the countryside and Outer Islands are important to policy makers because the former has a long history of agrarian radicalism and the latter a history of secessions.

This paper considers the effects of uncertainty on the magnitude of prospective welfare gains from international macroeconomic policy coordination. Three different sources of uncertainty are studied: the initial state of the economy; the correct welfare weights to be assigned to policy targets; and the impact on the economy that economic models attribute to policy changes. Simulation results show that uncertainty about any of the three reduces the likely gains from coordination and creates the possibility of negative effects. The gains from improved economic knowledge can be quite substantial in relation to the gains from coordination. This suggests that the development and exchange of economic information can be an important function of international cooperation.

Systems of policy coordination since 1945 may be classified as rule-governed systems relying on decentralized national decisions (a stylized Bretton Woods system) or discretionary bargaining in which coordination decisions are taken collectively at the international level (e.g. world economic summits). The European Monetary System combines elements of these two models. National attachments to rules cannot be explained solely by the strength of international institutions. A discretionary bargaining model of coordination is more likely to be successful when national leaders share a policy diagnosis that both cuts across economic issue areas and divides their own domestic political coalitions and governments. International organizations may facilitate policy coordination under a rule-based system through provision of resources to ease adjustment costs and rule clarification, and in a discretionary bargaining system by brokering, providing information and model building.