The role of macroeconomic policy in rebalancing growth
AbstractThe aftermath of the global financial crisis of 2007–2009 has called the export-led growth model of many Asian economies into question. This paper describes the contribution that macroeconomic policy can make to promote a rebalancing of growth away from dependence on exports to developed economies to a more sustainable pattern of growth centered on domestic and regional demand. This represents a significant departure from the traditional uses of macroeconomic policy to stabilize the economic cycle and achieve stable and low inflation. The evidence suggests that macroeconomic policy can successfully contribute to growth rebalancing. Policy measures not only can affect aggregate demand directly, but can also affect it indirectly via their “microeconomic” impacts on private sector behavior such as the household savings rate. Although in the long-term fiscal policy should be balanced to maintain government debt stability and avoid crowding out of private investment, there may be substantial scope to expand monetary and fiscal policy in the medium-term to offset the deflationary effects of an appreciating currency during periods of current account reversal. Previous experience suggests that most of the needed stimulus can be provided by monetary policy, with only a supplementary role to be played by fiscal policy. Moreover, Asian economies with large current account surpluses tend to have sufficient fiscal space.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Asian Economics.
Volume (Year): 23 (2012)
Issue (Month): 1 ()
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Web page: http://www.elsevier.com/locate/asieco
Growth rebalancing; Monetary policy; Fiscal policy; Savings-investment balance;
Other versions of this item:
- Peter J. Morgan, 2010. "The Role of Macroeconomic Policy in Rebalancing Growth," Macroeconomics Working Papers 23271, East Asian Bureau of Economic Research.
- Peter J. Morgan, 2010. "The Role of Macroeconomic Policy in Rebalancing Growth," Development Economics Working Papers 23271, East Asian Bureau of Economic Research.
- J. Morgan, Peter, 2011. "The Role of Macroeconomic Policy in Rebalancing Growth," ADBI Working Papers 266, Asian Development Bank Institute.
- Peter J. Morgan, 2010. "The Role of Macroeconomic Policy in Rebalancing Growth," Governance Working Papers 23271, East Asian Bureau of Economic Research.
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
- H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
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