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Analysing the Distributional Impacts of Stabilisation Policy with a CGE Model: Illustrations and Critique for Zimbabwe

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  • Sonja Fagernäs

Abstract

ESAU Working Paper 4 applies a standard (IFPRI) macroeconomic CGE model to Zimbabwe to ascertain the likely income distribution impacts of alternative policy instruments for stabilising the economy, specifically for eliminating the current account deficit, viz. devaluation or fiscal adjustment. The author finds, however, that the model is unable for structural reasons to simulate the impact of expenditure reduction on the current account; its closure procedure offsets decreases in public consumption with increases in private consumption. This leaves devaluation as the only analysable policy instrument for balance of payments adjustment. Devaluation is likely to be contractionary for GDP, and in all sectors except agriculture and export-oriented production. Profits and labour incomes in commercial farming rise, but in other sectors fall.

Suggested Citation

  • Sonja Fagernäs, 2004. "Analysing the Distributional Impacts of Stabilisation Policy with a CGE Model: Illustrations and Critique for Zimbabwe," Working Papers 4, Economics and Statistics Analysis Unit (ESAU), Overseas Development Institute.
    • Handle: RePEc:odi:wpaper:4
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    File URL: http://www.odi.org.uk/esau/publications/working_papers/esau_wp4.pdf
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    Keywords

    CGE model; stabilisation policy; Zimbabwe; PSIA; expenditure switching; expenditure reduction;
    All these keywords.

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