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Dynamics of Macroeconomic Adjustment with Growth: Some Simulation Results

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  • Sushanta Mallick

Abstract

This paper examines the impact of several macroeconomic policies, both demand and supply management policies, on economic activity within a small macroeconomic simulation model. The model is based on a standard analytical framework that underlies adjustment policies in developing economies (Des). The standard approach has been to use aggregate government expenditure as an instrument of fiscal policy to shock economic activity in a DE, with a negative dynamic response typically observed. In the context of such a small macroeconomic simulation model we decompose government expenditure into consumption and investment expenditure. Simulation exercises with and without model-consistent expectations throw up some contrasting results in the sense that fiscal policy can influence output positively through the effects of public sector investment on private investment in a DE such as India. [F43, E62]

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal International Economic Journal.

Volume (Year): 15 (2001)
Issue (Month): 1 ()
Pages: 115-139

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Handle: RePEc:taf:intecj:v:15:y:2001:i:1:p:115-139

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References

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  1. Phillips, Peter C B & Hansen, Bruce E, 1990. "Statistical Inference in Instrumental Variables Regression with I(1) Processes," Review of Economic Studies, Wiley Blackwell, vol. 57(1), pages 99-125, January.
  2. Ghani, Ejaz, 1991. "Rational expectations and price behavior : A study of India," Journal of Development Economics, Elsevier, vol. 36(2), pages 295-311, October.
  3. Ray C. Fair & John B. Taylor, 1980. "Solution and Maximum Likelihood Estimation of Dynamic Nonlinear RationalExpectations Models," NBER Technical Working Papers 0005, National Bureau of Economic Research, Inc.
  4. Taylor, Lance, 1994. "Gap models," Journal of Development Economics, Elsevier, vol. 45(1), pages 17-34, October.
  5. Bacha, Edmar L., 1990. "A three-gap model of foreign transfers and the GDP growth rate in developing countries," Journal of Development Economics, Elsevier, vol. 32(2), pages 279-296, April.
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Cited by:
  1. Brigitte Granville & Sushanta Mallick*, 2006. "Integrating poverty reduction in IMF-World Bank Models," Working Papers id:502, eSocialSciences.
  2. Mallick, Sushanta K., 2005. "Tight credit policy versus currency depreciation: Simulations from a trade and inflation model of India," Journal of Policy Modeling, Elsevier, vol. 27(5), pages 611-627, July.
  3. Seyoum, Belay, 2006. "US trade preferences and export performance of developing countries: Evidence from the generalized system of preferences," International Business Review, Elsevier, vol. 15(1), pages 68-83, February.
  4. Marianna Belloc & Pietro Vertova, 2004. "How Does Public Investment Affect Economic Growth in HIPC? An Empirical Assessment," Department of Economics University of Siena 416, Department of Economics, University of Siena.
  5. Mallick, Sushanta & Moore, Tomoe, 2005. "Impact of World Bank lending in an adjustment-led growth model," Economic Systems, Elsevier, vol. 29(4), pages 366-383, December.
  6. Seyoum, Belay, 2007. "Trade liberalization and patterns of strategic adjustment in the US textiles and clothing industry," International Business Review, Elsevier, vol. 16(1), pages 109-135, February.

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