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Macroeconomic Policy: Implications for Inclusive Growth

Author

Listed:
  • Ashima Goyal

    (The author is a Professor at Indira Gandhi Institute of Development Research, Gen. Vaidya Marg, Santosh Nagar, Goregaon (E), Mumbai-400 065, India, email: ashima@igidr.ac.in)

Abstract

This article addresses the issue of past and future types of monetary-fiscal coordination that can deliver inclusive growth and low inflation in the Indian context. After India’s Independence, monetary policy was subordinated to planned development and, therefore, implicitly directed at inclusion. But large areas of the economy were still not monetised, and the modern sector was small. So inclusion was about expanding the sphere of the modern economy. Once a populous emerging market (EM) crosses a critical threshold and high catch-up growth is established, higher labour mobility blurs the distinction between the formal and informal sectors. A macroeconomics of the aggregate economy becomes both necessary and feasible. Since monetary policy affects a larger part of the economy, it can directly affect inclusion by affecting the pace of job creation. But bottlenecks that raise costs, pushing up the price at which any level of output is available, can force monetary tightening. If fiscal policies are redesigned for active inclusion that expands human capacity, makes more productive labour available, and reduces wasteful distortions, monetary policy can better support the objective of inclusive growth. The change in the type and efficacy of government policies designed for inclusion required has become politically and technologically feasible. JEL Classification: E63, E31, O11, O23

Suggested Citation

  • Ashima Goyal, 2014. "Macroeconomic Policy: Implications for Inclusive Growth," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 8(4), pages 353-373, November.
  • Handle: RePEc:sae:mareco:v:8:y:2014:i:4:p:353-373
    DOI: 10.1177/0973801014544579
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    References listed on IDEAS

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    1. Tavares, Jose & Wacziarg, Romain, 2001. "How democracy affects growth," European Economic Review, Elsevier, vol. 45(8), pages 1341-1378, August.
    2. Jordi Galí, 2008. "Introduction to Monetary Policy, Inflation, and the Business Cycle: An Introduction to the New Keynesian Framework," Introductory Chapters, in: Monetary Policy, Inflation, and the Business Cycle: An Introduction to the New Keynesian Framework, Princeton University Press.
    3. Goyal, Ashima, 2011. "A general equilibrium open economy model for emerging markets: Monetary policy with a dualistic labor market," Economic Modelling, Elsevier, vol. 28(3), pages 1392-1404, May.
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    5. Ashima Goyal & Akash Kumar Baikar, 2014. "Psychology, cyclicality or social programs: Rural wage and inflation dynamics in India," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2014-014, Indira Gandhi Institute of Development Research, Mumbai, India.
    6. Goyal, Ashima, 2002. "Coordinating monetary and fiscal policies: a role for rules?," MPRA Paper 29200, University Library of Munich, Germany.
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    More about this item

    Keywords

    Inclusive Growth; Active Inclusion; Labour Mobility; Cost-push; Productivity;
    All these keywords.

    JEL classification:

    • 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; Treasury Policy
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development

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