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Pace and Sequencing of Economic Policies

  • Juan Zalduendo
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    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-Ã -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.

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    Paper provided by International Monetary Fund in its series IMF Working Papers with number 05/118.

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    Length: 20
    Date of creation: 01 Jun 2005
    Date of revision:
    Handle: RePEc:imf:imfwpa:05/118
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    1. Carmen M. Reinhart & Kenneth S. Rogoff, 2004. "The Modern History of Exchange Rate Arrangements: A Reinterpretation," The Quarterly Journal of Economics, MIT Press, vol. 119(1), pages 1-48, February.
    2. Fischer, Stanley, 1993. "The role of macroeconomic factors in growth," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 485-512, December.
    3. Staehr, Karsten, 2003. "Reforms and economic growth in transition economies: Complementarity, sequencing and speed," BOFIT Discussion Papers 1/2003, Bank of Finland, Institute for Economies in Transition.
    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. Mauro, Paolo, 1995. "Corruption and Growth," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 681-712, August.
    6. Funke, Norbert, 1993. "Timing and Sequencing of Reforms: Competing Views and the Role of Credibility," Kyklos, Wiley Blackwell, vol. 46(3), pages 337-62.
    7. 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.
    8. 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.
    9. Funke, Norbert, 1993. "Timing and sequencing of reforms: Competing views," Kiel Working Papers 552, Kiel Institute for the World Economy.
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