This paper analyzes the case for the international coordination of macroprudential policies in the context of a simple theoretical framework.Both domestic macroprudential policies and prudential capital controls have international spillovers through their impact on capital flows.The uncoordinated use of macroprudential policies may lead to a "capital war" that depresses global interest rates.International coordination of macroprudential policies is not warranted, however, unless there is unemployment in some countries.There is scope for Pareto-improving international policy coordination when one part of the world is in a liquidity trap while the rest of the world accumulates reserves for prudential reasons.
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