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Macroeconomic Management in Emerging Economies and the International Financial Architecture


  • Jose De Gregorio


In the last few years, and most recently with the crisis in Argentina, views about emerging markets and the international financial institutions have changed significantly. This paper reviews macroeconomic management in emerging economies and the role of the international financial institutions in helping to secure their stability. It discusses the role of macroeconomic policies, in particular exchange rate policies, arguing that a very strong case can be made for exchange rate flexibility. However, as recent evidence confirms, this choice requires an institutional framework that credibly commits the economy to low inflation, preventing price instability even in the presence of strong fluctuations in the exchange rate. Also discussed is the role of the international financial institutions in a world of recurrent currency crises and contagion. Despite the need for increased transparency, accountability, and greater independence for the International Monetary Fund, to avoid its being seen as an institution that primarily serves the political goals of its main shareholders, and despite the need for improved procedures to handle crises, the best recipe for stability is at the domestic level. Good macroeconomic policies are those that bring about low inflation, fiscal prudence, and a strong financial system: these are necessary and almost sufficient conditions to avoid the type of crisis experienced repeatedly in the last decade. However, strong institutions must support this set of policies. The ultimate goal of macroeconomic policy is to serve as the basis for prosperity and for improving the well-being of the entire population, and here there is no substitute for macroeconomic stability.

Suggested Citation

  • Jose De Gregorio, 2002. "Macroeconomic Management in Emerging Economies and the International Financial Architecture," Working Papers Central Bank of Chile 163, Central Bank of Chile.
  • Handle: RePEc:chb:bcchwp:163

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    Cited by:

    1. Jose De Gregorio & Andrea Tokman R., 2004. "Overcoming Fear of Floating: Exchange Rate Policies in Chile," Working Papers Central Bank of Chile 302, Central Bank of Chile.
    2. Lane, Philip R, 2003. "Business Cycles and Macroeconomic Policy in Emerging Market Economies," International Finance, Wiley Blackwell, vol. 6(1), pages 89-108, Spring.
    3. Héctor Bravo L. & Carlos García T., 2002. "Measuring Monetary Policy and Pass-Through in Chile," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 5(3), pages 5-28, December.
    4. Fernando Ossa, 2003. "Los Bancos Centrales como Prestamistas de Última Instancia," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 40(120), pages 323-335.

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