Another argument is that when the sending country is at the zero lower bound, and the receiving country responds to capital inflows with aggressive reserve accumulation, both may be better off with more moderate policies. 18 Indeed, it may well be that coordination may allow policy makers political room to move away from sub optimal policies.
If political paralysis and consequent fiscal tightening forces a source country to a sub-optimal reliance on monetary stimulus, policy coordination that allows for expanded demand elsewhere could allow the source country to cut back on its dependence on monetary stimulus.