alberto g musalem : international spillovers and policies remarks by mr alberto g musalem, executive vice president of the integrated policy analysis group of the federal reserve bank of new york, at the people ’ s bank of chinafederal reserve bank of new york joint symposium, hangzhou, zhejiang, china, 15 mach 2016. * * * good morning. thank you for the opportunity to speak here in hangzhou about the important theme of international spillovers. by exchanging perspectives and experiences we can forge relationships and a shared understanding that can lead to better economic outcomes. i will focus mostly on the interaction of international spillovers with policy frameworks within and across countries. i will do this from the vantage point of a domestic economy experiencing foreign spillovers. i will then briefly turn to considerations from a u. s. perspective. as always, my remarks reflect my own views and not necessarily those of the federal reserve bank of new york, the federal open market committee ( fomc ), or the federal reserve system. 1 international spillovers encompass a broad topic with respect to their sources and channels. before narrowly focusing on monetary sources and associated channels, it seems appropriate to first take a broader view of the various sources. foreign spillovers can emanate from monetary, fiscal, regulatory, currency or trade policies. spillovers can also arise from endogenous productivity changes, from financial stability developments, and from a global financial cycle. 2 the mundell - fleming logic remains relevant for thinking about policy options of open economies. it provides lessons on channels of transmission, basic tradeoffs across objectives, and the effectiveness of policy responses. 3 the channels of macroeconomic and financial transmission among open and interdependent economies occur through the current account of the balance of payments, the capital account, or both. from the vantage point of the domestic economy, there are three main channels of transmission : the exchange rate ; the external demand ; and the interest rate or risk - premia channel. the last can be more broadly defined as the financial conditions channel. the intensity of transmission of spillovers will depend on the monetary policy, currency policy and the real and financial openness of the economy being affected by external developments. other relevant characteristics include the flexibility of labor and product markets ; the depth, safety and soundness of the financial system ; and the economy ’ s position as an international creditor or debtor. the mundell - fleming framework suggests that a country with a high degree of capital mobility and

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