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The Role of Macroeconomic Policy in Rebalancing Growth

  • J. Morgan, Peter

    (Asian Development Bank Institute)

The aftermath of the global financial crisis of 2007–2009 has called the export-led growth model of Asian economies into question. This paper describes the contribution that macroeconomic policy can make to promote a rebalancing of growth away from dependence on exports to developed economies to a more sustainable pattern of growth centered on domestic and regional demand. This represents a significant departure from the traditional uses of macroeconomic policy to stabilize the economic cycle and achieve stable and low inflation. The evidence suggests that macroeconomic policy can successfully contribute to growth rebalancing. Policy measures not only can affect aggregate demand directly, but can also affect it indirectly via their “microeconomic” impacts on private sector behavior. Although in the long-term fiscal policy should be balanced to maintain government debt stability and avoid crowding out of private investment, there may be substantial scope to expand monetary and fiscal policy in the medium-term to offset the deflationary effects of an appreciating currency during periods of current account reversal. Previous experience suggests that most of the needed stimulus can be provided by monetary policy, with only a supplementary role to be played by fiscal policy. Moreover, Asian economies with large current account surpluses tend to have sufficient fiscal space.

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File URL: http://www.adbi.org/files/2011.02.17.wp266.macroeconomic.policy.rebalancing.growth.pdf
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Paper provided by Asian Development Bank Institute in its series ADBI Working Papers with number 266.

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Length: 28 pages
Date of creation: 17 Feb 2011
Date of revision:
Handle: RePEc:ris:adbiwp:0266
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  1. Schou-Zibell, Lotte & Madhur, Srinivasa, 2010. "Regulatory Reforms for Improving the Business Environment in Selected Asian Economies - How Monitoring and Comparative Benchmarking Can Provide Incentive for Reform," Working Papers on Regional Economic Integration 40, Asian Development Bank.
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  3. Charles Yuji Horioka & Junmin Wan, 2007. "The determinants of household saving in China: a dynamic panel analysis of provincial data," Working Paper Series 2007-28, Federal Reserve Bank of San Francisco.
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  5. Thorbecke, Willem, 2010. "Investigating the Effect of Exchange Rate Changes on the People's Republic of China's Processed Exports," ADBI Working Papers 202, Asian Development Bank Institute.
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  7. Andrew Filardo & Hans Genberg, 2010. "Monetary Policy Strategies in the Asia and Pacific Region : What Way Forward?," Finance Working Papers 23011, East Asian Bureau of Economic Research.
  8. Prema-Chandra Athukorala & Pang-Long Tsai, 2003. "Determinants of Household Saving in Taiwan: Growth, Demography and Public Policy," Journal of Development Studies, Taylor & Francis Journals, vol. 39(5), pages 65-88.
  9. Chou, Shin-Yi & Liu, Jin-Tan & Hammitt, James K., 2003. "National Health Insurance and precautionary saving: evidence from Taiwan," Journal of Public Economics, Elsevier, vol. 87(9-10), pages 1873-1894, September.
  10. Adams, Charles & Ferrarini, Benno & Park, Donghyun, 2010. "Fiscal Sustainability in Developing Asia," ADB Economics Working Paper Series 205, Asian Development Bank.
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