Theoretical foundations of international policy coordination

Policy process more from a domestic perspective. If a country is small one can assume away any spillover effects that a country's macroeconomic policy might have on other countries because they are likely to be negligible with respect to world economy. However, if we are interested in analysing large economies with spillover effects different countries become interdependent. Here we illustrate that in the presence of spillover effects countries can benefit by coordinating their economic and other policies rather than remaining uncoordinated.