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Pace and Sequencing of Economic Policies

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  • Juan Zalduendo

Abstract

This paper examines the design of economic policies using factor analysis, which has several advantages; in particular, it limits the problems that typically arise from the high correlation of economic policy indicators, it helps in identifying clusters of economic policy, and it facilitates the derivation of policy design indicators that represent the pace and sequence of economic policies. Econometric results show that the introduction of sound economic policies has both level effects and growth effects, suggesting it is necessary to exercise caution when assessing a country's growth prospects immediately following the introduction of new policies. In addition, the results suggest that growth strengthens when a country implements policies that outpace either a notional measure of "world average policies" or a country's own policy trend, and highlight the critical role played by macroeconomic vis-à-vis microeconomic policies. The latter also reveals the existence of sequencing factors in policy implementation; for example, trade liberalization and financial liberalization positively affect growth, but more so if economic stability and fiscal sustainability have been secured.

Suggested Citation

  • Juan Zalduendo, 2005. "Pace and Sequencing of Economic Policies," IMF Working Papers 05/118, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:05/118
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    References listed on IDEAS

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    1. Funke, Norbert, 1993. "Timing and sequencing of reforms: Competing views," Kiel Working Papers 552, Kiel Institute for the World Economy (IfW).
    2. Carmen M. Reinhart & Kenneth S. Rogoff, 2004. "The Modern History of Exchange Rate Arrangements: A Reinterpretation," The Quarterly Journal of Economics, Oxford University Press, vol. 119(1), pages 1-48.
    3. Stephen Knack & Philip Keefer, 1995. "Institutions And Economic Performance: Cross-Country Tests Using Alternative Institutional Measures," Economics and Politics, Wiley Blackwell, vol. 7(3), pages 207-227, November.
    4. Juan Zalduendo & Catia Batista, 2004. "Can the IMF's Medium-Term Growth Projections Be Improved?," IMF Working Papers 04/203, International Monetary Fund.
    5. Fischer, Stanley, 1993. "The role of macroeconomic factors in growth," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 485-512, December.
    6. Funke, Norbert, 1993. "Timing and Sequencing of Reforms: Competing Views and the Role of Credibility," Kyklos, Wiley Blackwell, vol. 46(3), pages 337-362.
    7. Paolo Mauro, 1995. "Corruption and Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 110(3), pages 681-712.
    8. Saleh M. Nsouli & Mounir Rached & Norbert Funke, 2002. "The Speed of Adjustment and the Sequencing of Economic Reforms; Issues and Guidelines for Policymakers," IMF Working Papers 02/132, International Monetary Fund.
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    Cited by:

    1. Christiansen, Lone & Schindler, Martin & Tressel, Thierry, 2013. "Growth and structural reforms: A new assessment," Journal of International Economics, Elsevier, vol. 89(2), pages 347-356.

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