This paper reviews models of long-run growth which assume that the economy is not on its so-called ‘normal’ path, and in which both aggregate demand and aggregate supply issues have a role in determining long-run growth. This review shows that contractionary stabilization policies can have adverse long-run effects on growth, and may in fact exacerbate the problems they were intended to solve.
This paper describes the Nominal Anchor Approach, the Real Targets Approach, and the Exchange Stability Approach to the formulation of exchange-rate policy, as presented by Max Corden. It argues that these approaches need to be supplemented by a fourth approach, which it terms the Development Strategy Approach, to represent the thought especially of Bela Balassa. The Development Strategy Approach regards choice of the exchange rate as a key strategic element in whether an economy will grow or stagnate. A growth strategy requires an exchange rate sufficiently competitive to motivate entrepreneurs to invest with the objective of going out and selling non-traditional exports on the world market.
In this article we analyze, first, why funds continued to flow towards emerging economies while fundamentals in host countries had been deteriorating before the Asian crisis (a rising external deficit, with a significant liquid component; appreciating exchange rates; low capital formation, particularly in Latin America), and why funding remains dry for long since 1998; the role of the nature of the predominant agents and of a process of flows rather than one shot building of stock of foreign capital are stressed. Then, the analysis focuses on the interrelations of capital flows and fiscal, monetary and exchange-rate policies. Finally, some policy implications are presented for boom-and-bust stages of cycles led by capital flows.
This chapter discusses some relationships between the macro economy, economic policy at the macro level, and the environmental and resource situation in developing countries. We focus on five issues, namely taxes and subsidies directed at energy and resource sectors, investments with particular environmental and resource implications, exchange rate and monetary policy, financial sector issues, and effects of crises and stress situations. Main findings are, first, that while having been reduced somewhat in later years, energy and resource subsidies still contribute to substantial excessive environmental and resource stress.
Most well-trained economists would agree that the standard policy reforms included in the Washington Consensus have the potential to be growth-promoting. What the experience of the last 15 years has shown, however, is that the impact of these reforms is heavily dependent on circumstances.
This paper argues that the recent boom in the Latin American economies can be explained by the conjunction of two external factors not found together since the 1970s: strong commodity prices (more so for hydrocarbons and mining products than for agricultural commodities) and exceptional external financing conditions.
This paper argues that a more developmental and growth-friendly approach to macroeconomic policies in developing countries requires measures to mitigate the procyclical effects of financial markets, provide more stable aid inflows, deepen financial markets and strengthen domestic financial governance structures. Such conditions will create “policy space” for countercyclical macroeconomic policies.