IDEAS home Printed from
MyIDEAS: Login to save this paper or follow this series

From Financieristic To Real Macroeconomics: Seeking Development Convergence In Ees

  • Ricardo Ffrench-Davis

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.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: no

Paper provided by University of Chile, Department of Economics in its series Working Papers with number wp272.

in new window

Length: 53 pages
Date of creation: Jan 2008
Date of revision:
Handle: RePEc:udc:wpaper:wp272
Contact details of provider: Web page:

More information through EDIRC

References listed on IDEAS
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.:

as in new window
  1. Anoop Singh, 2006. "Macroeconomic Volatility: The Policy Lessons from Latin America," IMF Working Papers 06/166, International Monetary Fund.
  2. 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.
  3. 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.
  4. 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.
  5. Reisen, Helmut, 2002. "Ratings since the Asian Crisis," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  6. Alesina, Alberto F & Rodrik, Dani, 1991. "Distributive Politics and Economic Growth," CEPR Discussion Papers 565, C.E.P.R. Discussion Papers.
  7. Andres Velasco & Alejandro Neut, 2003. "Tough Policies, Incredible Policies?," NBER Working Papers 9932, National Bureau of Economic Research, Inc.
  8. 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 157-79, May.
  9. Shang-Jin Wei & Irina Tytell, 2004. "Does Financial Globalization Induce Better Macroeconomic Policies?," IMF Working Papers 04/84, International Monetary Fund.
  10. 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.
  11. Galor, Oded & Zeira, Joseph, 1993. "Income Distribution and Macroeconomics," Review of Economic Studies, Wiley Blackwell, vol. 60(1), pages 35-52, January.
  12. Stanley Fischer, 1993. "The Role of Macroeconomic Factors in Growth," NBER Working Papers 4565, National Bureau of Economic Research, Inc.
  13. Blanchard, Olivier & Galí, Jordi, 2006. "A New Keynesian model with unemployment," CFS Working Paper Series 2007/08, Center for Financial Studies (CFS).
  14. 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.
  15. 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.
  16. Stiglitz, Joseph E., 2000. "Capital Market Liberalization, Economic Growth, and Instability," World Development, Elsevier, vol. 28(6), pages 1075-1086, June.
  17. Stanley Fischer, 2006. "Reflections on One Year at the Bank of Israel," NBER Working Papers 12426, National Bureau of Economic Research, Inc.
  18. 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.
  19. M. Ayhan Kose & Kenneth Rogoff & Eswar Prasad & Shang-Jin Wei, 2003. "Effects of Financial Globalization on Developing Countries: Some Empirical Evidence," IMF Occasional Papers 220, International Monetary Fund.
  20. H. Siebert, 2007. "Growth Policy," Chapters, in: Elgar Companion to Neo-Schumpeterian Economics, chapter 59 Edward Elgar.
  21. 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.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top 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: (Tatiana Reyes)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.