From Financieristic To Real Macroeconomics: Seeking Development Convergence In Ees
There is a broad consensus that macroeconomic “fundamentals” are a most relevant variable to enhance economic development. However, there is wide misunderstanding about (i) which are the “sound macroeconomic fundamentals", contributing to a sustained high economic growth, and (ii) how to achieve and sustain them. The approach that has been in fashion in the mainstream world and IFIs emphasizes macroeconomic balances of two pillars: low inflation and fiscal balances. We call it financieristic macroeconomic balances. Additionally, a frequent assertion in the more recent conventional literature is that an open capital account contributes to impose macroeconomic discipline in EEs. Indeed, this approach assumes, frequently implicitly, that full opening of the capital account automatically generate an aggregate demand consistent with productive capacity. That approach implies a clear omission of the overall macroeconomic environment for producers, which includes other most influential variables such as consistency of aggregate demand with potential GDP, and interest and exchange rates. As a consequence, in many emerging economies (EEs) “a sound macroeconomics” (low inflation and fiscal discipline) is observed, in parallel with slow growth and high unemployment of labor and of productive capital resulting from unstable aggregate demand and outlier interest and exchange rates. The standard approach evidently includes other ingredients, but assumes, that the hard, relevant, proof is in fulfilling those two pillars. The belief is that that couple leads to achieving productive development if the economy is liberalized. There is strong evidence that financial macroeconomic balances have provided a macroeconomic environment that has not contributed to a high and sustained growth. A third pillar must be added, linked to the productive side of the economy. The behavior of aggregate demand, at levels consistent with potential GDP (productive capacity or production frontier), is a crucial part of a third pillar of real macroeconomic balances, which has frequently failed in neo-liberal experiences. Similarly, are well-aligned macro-prices, like interest and exchange rates. Frequently, these prices and aggregate demand have behaved as outliers (out-of-equilibrium), as reflected in economies working either below potential GDP (the most frequent result), or overheated, with a booming aggregate demand and a large external deficit. This article will widen the view on macroeconomic balances by taking into account the macroeconomic incentives faced by firms and workers in the productive side of the economy (the producers of GDP), and the inter-relationship between financial and real variables. We analyze alternative structural countercyclical fiscal policies, intermediate exchange rate policies, and capital account approaches.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Aizenman, Joshua & Marion, Nancy, 1999. "Volatility and Investment: Interpreting Evidence from Developing Countries," Economica, London School of Economics and Political Science, vol. 66(262), pages 157-179, May.
- Ethan Kaplan & Dani Rodrik, 2002.
"Did the Malaysian Capital Controls Work?,"
NBER Chapters,in: Preventing Currency Crises in Emerging Markets, pages 393-440
National Bureau of Economic Research, Inc.
- Ethan Kaplan & Dani Rodrik, 2001. "Did the Malaysian Capital Controls Work?," NBER Working Papers 8142, National Bureau of Economic Research, Inc.
- Kaplan, Ethan & Rodrik, Dani, 2001. "Did the Malaysian Capital Controls Work?," CEPR Discussion Papers 2754, C.E.P.R. Discussion Papers.
- Kaplan, Ethan & Rodrik, Dani, 2001. "Did the Malaysian Capital Controls Work?," Working Paper Series rwp01-008, Harvard University, John F. Kennedy School of Government.
- Norman Loayza & Raimundo Soto, 2002. "Inflation Targeting: An Overview," Central Banking, Analysis, and Economic Policies Book Series,in: Norman Loayza & Raimundo Soto & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series Editor) (ed.), Inflation Targeting: Desing, Performance, Challenges, edition 1, volume 5, chapter 1, pages 001-022 Central Bank of Chile.
- Graciela L. Kaminsky & Carmen M. Reinhart & Carlos A. Végh, 2005.
"When It Rains, It Pours: Procyclical Capital Flows and Macroeconomic Policies,"
NBER Chapters,in: NBER Macroeconomics Annual 2004, Volume 19, pages 11-82
National Bureau of Economic Research, Inc.
- Reinhart, Carmen & Kaminsky, Graciela & Vegh, Carlos, 2004. "When it rains, it pours: Procyclical capital flows and macroeconomic policies," MPRA Paper 13883, University Library of Munich, Germany.
- Graciela L. Kaminsky & Carmen M. Reinhart & Carlos A. Vegh, 2004. "When it Rains, it Pours: Procyclical Capital Flows and Macroeconomic Policies," NBER Working Papers 10780, National Bureau of Economic Research, Inc.
- H. Siebert, 2007. "Growth Policy," Chapters,in: Elgar Companion to Neo-Schumpeterian Economics, chapter 59 Edward Elgar Publishing.
- Ayhan Kose & Kenneth Rogoff & Eswar S Prasad & Shang-Jin Wei, 2003. "Effects of Financial Globalization on Developing Countries; Some Empirical Evidence," IMF Occasional Papers 220, International Monetary Fund.
- Stiglitz, Joseph E., 2000. "Capital Market Liberalization, Economic Growth, and Instability," World Development, Elsevier, vol. 28(6), pages 1075-1086, June.
- Ramey, Garey & Ramey, Valerie A, 1995.
"Cross-Country Evidence on the Link between Volatility and Growth,"
American Economic Review,
American Economic Association, vol. 85(5), pages 1138-1151, December.
- Garey Ramey & Valerie A. Ramey, 1994. "Cross-Country Evidence on the Link Between Volatility and Growth," NBER Working Papers 4959, National Bureau of Economic Research, Inc.
- Stanley Fischer, 2006. "Reflections on One Year at the Bank of Israel," NBER Working Papers 12426, National Bureau of Economic Research, Inc.
- Solimano, Andrés & Gutiérrez, Mario A., 2006. "Savings, investment and growth in the global age: analytical and policy issues," Macroeconomía del Desarrollo 53, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
- Manuel Agosin & Ricardo French-Davis, 1997. "Managing capital inflows in Chile," Estudios de Economia, University of Chile, Department of Economics, vol. 24(2 Year 19), pages 297-326, December.
- Alberto Alesina & Dani Rodrik, 1994.
"Distributive Politics and Economic Growth,"
The Quarterly Journal of Economics,
Oxford University Press, vol. 109(2), pages 465-490.
- Alesina, Alberto F & Rodrik, Dani, 1991. "Distributive Politics and Economic Growth," CEPR Discussion Papers 565, C.E.P.R. Discussion Papers.
- Alberto Alesina & Dani Rodrik, 1991. "Distributive Politics and Economic Growth," NBER Working Papers 3668, National Bureau of Economic Research, Inc.
- Rodrik, Dani & Alesina, Alberto, 1994. "Distributive Politics and Economic Growth," Scholarly Articles 4551798, Harvard University Department of Economics.
- Paul Krugman, 2005. "Is Fiscal Policy Poised for a Comeback?," Oxford Review of Economic Policy, Oxford University Press, vol. 21(4), pages 515-523, Winter.
- Fischer, Stanley, 1993. "The role of macroeconomic factors in growth," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 485-512, December.
- Zahler, Roberto, 2006. "Macroeconomic stability and investment allocation of domestic pension funds in emerging economies: the case of Chile," Copublicaciones, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), number 1893, March.
- Oded Galor & Joseph Zeira, 1993. "Income Distribution and Macroeconomics," Review of Economic Studies, Oxford University Press, vol. 60(1), pages 35-52.
- Blanchard, Olivier & Galί, Jordi, 2006.
"A New Keynesian Model with Unemployment,"
Kiel Working Papers
1335, Kiel Institute for the World Economy (IfW).
- Olivier Blanchard & Jordi Gali, 2006. "A new Keynesian model with unemployment," Working Paper Research 92, National Bank of Belgium.
- Blanchard, Olivier & Galí, Jordi, 2006. "A New Keynesian model with unemployment," CFS Working Paper Series 2007/08, Center for Financial Studies (CFS).
- Reisen, Helmut, 2003. "Ratings since the Asian crisis," Copublicaciones, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), number 1790, March.
- Kacef, Osvaldo & Machinea, José Luis, 2007. "Growth and equity: in search of the empty box""," Copublicaciones, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), number 1936, March.
- Shang-Jin Wei & Irina Tytell, 2004. "Does Financial Globalization Induce Better Macroeconomic Policies?," IMF Working Papers 04/84, International Monetary Fund.
- Calvo, Guillermo A. & Mendoza, Enrique G., 2000. "Rational contagion and the globalization of securities markets," Journal of International Economics, Elsevier, vol. 51(1), pages 79-113, June.
- Guillermo A. Calvo & Enrique G. Mendoza, 1999. "Regional Contagion and the Globalization of Securities Markets," NBER Working Papers 7153, National Bureau of Economic Research, Inc.
- Martner Fanta, Ricardo & Tromben, Varinia, 2004. "Tax reforms and fiscal stabilization in Latin American countries," Gestión Pública 45, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
- Agosin, Manuel R., 2007. "Trade and growth: why Asia grows faster than Latin America," Copublicaciones, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), number 1940, March.
- Philippe Aghion & George-Marios Angeletos & Abhijit Banerjee & Kalina Manova, 2005. "Volatility and Growth: Credit Constraints and Productivity-Enhancing Investment," NBER Working Papers 11349, National Bureau of Economic Research, Inc.
- Anoop Singh, 2006. "Macroeconomic Volatility; The Policy Lessons from Latin America," IMF Working Papers 06/166, International Monetary Fund.
- Andres Velasco & Alejandro Neut, 2003. "Tough Policies, Incredible Policies?," NBER Working Papers 9932, National Bureau of Economic Research, Inc.
- Griffith-Jones, Stephany, 2001. "An international financial architecture for crisis prevention," Copublicaciones, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), number 1705, March. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:udc:wpaper:wp272. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mohit Karnani)
If references are entirely missing, you can add them using this form.