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Macroeconomic Policies, Instability, and Growth in the Wo

  • Ibrahim Elbadawi
  • Klaus Schmidt-Hebbel

High instability and low growth characterize the macroeconomic performance of most developing countries. Inadequate policies are often to blame. This paper documents the empirical regularities that characterize the relationship between macroeconomic-financial policies, instability, and growth across developing and industrial nations. While successful transitions to low instability and high growth are not frequent, they have been observed in a dozen of countries. Such win-win transitions require to put into place institutions and rules that change government incentives in choosing between policies that reflect narrow interests or social conflict -- contributing to more instability and less growth -- and social welfare-maximizing policies that help growth and make economies more resilient to residual instability.

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Paper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 43.

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Date of creation: Dec 1998
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Handle: RePEc:chb:bcchwp:43
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  1. Graciela L. Kaminsky & Carmen M. Reinhart, 1996. "The twin crises: the causes of banking and balance-of-payments problems," International Finance Discussion Papers 544, Board of Governors of the Federal Reserve System (U.S.).
  2. William Easterly & Sergio Rebelo, 1993. "Fiscal Policy and Economic Growth: An Empirical Investigation," NBER Working Papers 4499, National Bureau of Economic Research, Inc.
  3. Alesina, A. & Drazen, A., 1991. "Why Are Stabilizations Delayed?," Papers 6-91, Tel Aviv - the Sackler Institute of Economic Studies.
  4. Bruno, Michael & Easterly, William, 1998. "Inflation crises and long-run growth," Journal of Monetary Economics, Elsevier, vol. 41(1), pages 3-26, February.
  5. Tommasi, Mariano & Velasco, Andres, 1995. "Where are we in the Political Economy of Reform?," Working Papers 95-20, C.V. Starr Center for Applied Economics, New York University.
  6. Schmidt-Hebbel, K., 1995. "Fiscal Adjustment and Growth: In and Out of Africa," Papers 19s, African Economic Research Consortium.
  7. Schmidt-Hebbel, K. & Serven, L., 1997. "Saving Across the World: Puzzles and Policies," World Bank - Discussion Papers 354, World Bank.
  8. Easterly, William & Kremer, Michael & Pritchett, Lant & Summers, Lawrence H., 1993. "Good policy or good luck?: Country growth performance and temporary shocks," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 459-483, December.
  9. Dani Rodrik, 1996. "Understanding Economic Policy Reform," Journal of Economic Literature, American Economic Association, vol. 34(1), pages 9-41, March.
  10. Easterly, W & Levine, R, 1996. "Africa's Growth Tragedy : Policies and Ethnic Divisions," Papers 536, Harvard - Institute for International Development.
  11. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
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