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Market liberalisation, monetary stabilisation and foreign debt : did Australia get it wrong in the 1980s?

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  • Frank Barry

Abstract

This paper argues that the Australian government made three errors when implementing the liberalisation and stabilisation programmes of the 1980's. International capital movements were liberalised at too high an Australian inflation rate; this deepened the later monetary-induced recession. The monetary contraction itself was supposedly aimed at reducing growth in foreign debt: theory and evidence, however, suggest that counter-inflationary policies increase foreign debt if the contraction occurs under free international capital mobility. By liberising international capital flows in advance of the major tariff cuts of the 1980's, finally, the negative effects of protectionism and the burden of adjustment to freer trade made have been increased. the policy errors led to an unnecessarily severe recession which may threaten further trade reform.

Suggested Citation

  • Frank Barry, 1992. "Market liberalisation, monetary stabilisation and foreign debt : did Australia get it wrong in the 1980s?," Working Papers 199210, School of Economics, University College Dublin.
    • Handle: RePEc:ucn:wpaper:199210
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    File URL: http://hdl.handle.net/10197/1681
    File Function: First version, 1992
    Download Restriction: no
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    Keywords

    Sequencing; Reforms; Monetary Contraction; Foreign debt; Monetary policy--Australia; Australia--Economic conditions--1976-1990; Australia--Economic policy--1976-1990;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • L5 - Industrial Organization - - Regulation and Industrial Policy

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