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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]

Suggested Citation

  • Sushanta Mallick, 2001. "Dynamics of Macroeconomic Adjustment with Growth: Some Simulation Results," International Economic Journal, Taylor & Francis Journals, vol. 15(1), pages 115-139.
  • Handle: RePEc:taf:intecj:v:15:y:2001:i:1:p:115-139 DOI: 10.1080/10168730100000006
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    References listed on IDEAS

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    1. Fair, Ray C & Taylor, John B, 1983. "Solution and Maximum Likelihood Estimation of Dynamic Nonlinear Rational Expectations Models," Econometrica, Econometric Society, pages 1169-1185.
    2. Peter C. B. Phillips & Bruce E. Hansen, 1990. "Statistical Inference in Instrumental Variables Regression with I(1) Processes," Review of Economic Studies, Oxford University Press, vol. 57(1), pages 99-125.
    3. Bacha, Edmar L., 1990. "A three-gap model of foreign transfers and the GDP growth rate in developing countries," Journal of Development Economics, Elsevier, pages 279-296.
    4. Taylor, Lance, 1994. "Gap models," Journal of Development Economics, Elsevier, pages 17-34.
    5. Ghani, Ejaz, 1991. "Rational expectations and price behavior : A study of India," Journal of Development Economics, Elsevier, pages 295-311.
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    Cited by:

    1. Sushanta K. Mallick, 2014. "Disentangling the Poverty Effects of Sectoral Output, Prices, and Policies in India," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 60(4), pages 773-801, December.
    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. 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.
    4. Seyoum, Belay, 2007. "Trade liberalization and patterns of strategic adjustment in the US textiles and clothing industry," International Business Review, Elsevier, pages 109-135.
    5. Seyoum, Belay, 2006. "US trade preferences and export performance of developing countries: Evidence from the generalized system of preferences," International Business Review, Elsevier, pages 68-83.
    6. Adrian Wood, 2004. "Making globalization work for the poor: the 2000 White Paper reconsidered," Journal of International Development, John Wiley & Sons, Ltd., pages 933-937.
    7. 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.
    8. Zhang, Lifeng & Ru, Yucong & Li, Jingkui, 2016. "Optimal tax structure and public expenditure composition in a simple model of endogenous growth," Economic Modelling, Elsevier, vol. 59(C), pages 352-360.

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