In this paper we examine the main challenges in promoting an effective market economy. While the paper ranges widely across the spectrum of economic institutions and policies, the central theme is the importance of macroeconomic stability for economic growth in the medium and long run. Macroeconomic stability may be seen as a public good. Its provision is among the essential responsibilities of the state both in modern market economies and in economies transforming themselves into modern market economies. Following this brief introduction, Section II considers four key aspects of the economic environment of the coming decades: increasing internationalization; market-orientation; diminished government role; and high real interest rates. Section III reviews the reasons why macroeconomic stability matters for economic performance and summarizes the key empirical evidence supporting the existence of a causal link. Section IV deals with the design of domestic and international policies and institutions to promote macroeconomic stability and Section V asks how national governments and international institutions can take advantage of the current relatively stable global macroeconomic environment to improve medium-term economic performance and promote long-term growth. Section VI concludes. While our discussion will range broadly, both theoretically and empirically, we shall emphasize lessons for, and experience from, countries attempting to create a market economy.
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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number
1468.
Find related papers by JEL classification: E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization F31 - International Economics - - International Finance - - - Foreign Exchange F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General H40 - Public Economics - - Publicly Provided Goods - - - General