On the Transmission Mechanism of Policy Shocks in Developing Countries
The debate over the effectiveness of demand-side stabilizing policies has often centred over the relative effectiveness of monetary and fiscal policies. Demand- and supply-side constraints are both relevant. On the supply side, price flexibility may be the result of structural and/or institutional constraints that warrant a larger degree of price adjustment in the face of demand fluctuations. On the demand side, structural constraints may hinder the transmission mechanism of demand fluctuations, resulting in an inelastic aggregate demand in the face of policy adjustments. Using data for 50 developing countries, supply-side constraints do not differentiate the transmission mechanism of policy shocks to price inflation and output growth. In contrast, a larger demand shift in the face of monetary and government spending shocks increases the real and inflationary effects of policy shocks. The pronounced evidence of upward price flexibility points to the importance of addressing supply-side capacity constraints to counter inflationary pressures in developing countries. Equally important is to analyse determinants of private spending to identify channels for influencing aggregate spending and maximizing the effectiveness of stabilization policies.
Volume (Year): 34 (2006)
Issue (Month): 2 ()
|Contact details of provider:|| Web page: http://www.tandfonline.com/CODS20|
|Order Information:||Web: http://www.tandfonline.com/pricing/journal/CODS20|
When requesting a correction, please mention this item's handle: RePEc:taf:oxdevs:v:34:y:2006:i:2:p:117-149. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael McNulty)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.