The role of macroeconomic policy in rebalancing growth

The aftermath of the global financial crisis of 2007–2009 has called the export-led growth model of many 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 such as the household savings rate. 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.     

The assessment: macroeconomic policy

This paper describes the emerging consensus about the 'reactionfunction' approach to macroeconomic policy. The first sectionof the paper describes the historical emergence of this consensus,as a synthesis of pre-Keynesian, Keynesian, and monetarist ideas.The theoretical part of the paper presents the basic frameworkof the approach and explains a number of extensions, including:finding the optimal reaction function, avoiding the problemof inflation bias, the relevance of the Taylor rule, forward-lookingexpectations, extensions to the open economy, and the interconnectionsbetween monetary and fiscal policy. The later parts of the papercontain a detailed discussion of some of the practical and institutionalissues involved in the implementation of this new framework.     

The assessment: macroeconomic policy after EMU

In this paper we discuss the emergence of the new European macroeconomicstructure within EMU. We focus on three important elements:the wage-fixing authorities in each country, the fiscal authoritiesin each country, and the single European Central Bank (ECB).We identify serious problems which might arise in coordinatingboth the wage-setters and the fiscal authorities, and arguethat these problems could be exacerbated if the ECB conductsmonetary policy inappropriately. In the light of this we providerecommendations for the conduct of monetary policy by the ECB.The paper also briefly discusses financial stability issuesand the interaction between the countries in EMU and the restof the world.     

Retracing the preferences behind macroeconomic policy: The dutch experience

Summary The 1986 Central Economic Plan for The Netherlands presents a combination of policy adjustments which is considered to lead to a more satisfactory outcome for the Dutch economy than the central projection for the period up to 1990. This study is an attempt to reconstruct the preferences behind the alternative scenario as a starting point for optimisation exercises. It turns out that reducing the government deficit receives the highest priority, while economic growth has a relatively low weight. A further analysis suggests that, to some degree, the high priority to improving the government budget may be due to risk aversion. At relatively low cost in terms of the other target variables, unemployment could be reduced by creating more public sector employment, the main drawback being a fall in disposable income per employee.This paper has grown out of the master's thesis of Annette Schrijver for the Technical University of Delft, which she wrote at the Central Planning Bureau. We have benefited from discussions with many colleagues. In particular we like to thank H. den Hartog, F.J.H. Don and V.R. Okker. The responsibility for the contents of this article rests entirely with the authors.     

The dynamic macroeconomic effects of tax policy in an overlapping generations model

The paper studies the dynamic allocation effects of tax policywithin the context of an overlapping-generations model of theBlanchard-Yaari type. The model is extended to allow for endogenouslabour supply and three tax instruments, viz. a capital tax,labour income tax, and consumption tax. Both analytical expressionsand simple diagrams are used to analyze the impact, transition,and long-run effects of tax policy changes. It is shown thata part of the long-run incidence of capital and consumptiontaxes falls on capital when households' horizons are finitewhereas labour would fully bear the burden of these taxes inan infinite-horizon model.     

Russian enterprises in mid-2006: Some consequences of national macroeconomic policy

The Results of a regular poll, conducted by the Laboratory of Macroeconomic Process Analysis and Forecasting of the RAS Institute of Economic Forecasting among real-sector enterprises, are analyzed and commented.     

The role of credibility in the cyclical properties of macroeconomic policies in emerging economies

Optimal stabilization policy is countercyclical, aiming at keeping output close to its potential. However it has been traditionally argued that emerging countries are unable to adopt countercyclical monetary and fiscal policies. Here we argue that the cyclical properties of macroeconomic policies depend critically on policy credibility. We test this proposition by making use of recent panel data for eleven emerging market economies and time series data for Chile. The evidence supports that countries with higher credibility, as reflected by lower country risk levels, are able to conduct countercyclical fiscal and monetary policies. Conversely, countries with less credible policies (and, therefore, with higher country risk spreads) contribute to larger cyclical fluctuations by applying procyclical policies. For Chile we find that both monetary and fiscal policies have been largely countercyclical after 1993. JEL no. E43, E52, E62     

The role of fiscal policy in Japan: a quantitative study

This paper analyzes the role of fiscal policy in the recent slowdown in Japan. A dynamic general equilibrium model is developed in which fiscal policy can have both expansionary effects (through increasing returns) and contractionary effects (through the increase of public debt and tax burden). A version of the model is calibrated to the Japanese economy and is used to measure the importance of both these effects. We find that, under a wide range of parameters, net expansionary effects are quantitatively small, thus suggesting a limited role for fiscal stabilization     

Real exchange rate, agglomerations, and irreversibilities: macroeconomic policy and FDI in EMU

Fiscal policy in EMU has to be evaluated in the light of thechanging nature of capital mobility in Europe and its effectson growth. Most arguments about the effects of fiscal policyin EMU assume that we live in a perfect competition world witha unique natural rate of output for each country. The removalof barriers to foreign direct investment (FDI) accompanied bythe prevalence of imperfect competition mean that the naturalrate of output is to be determined by locational competition.We show that FDI is influenced by relative costs and is attractedby agglomerations, and that the level of technology dependson the stock of FDI. Sustained expansionary fiscal policieswill raise costs and make locations less attractive. Agglomerationscould be destroyed by these higher costs, and the size of thenation will shrink. These effects will constrain policy-makersmuch more than the Stability Pact.     

The causes of Japan's ‘lost decade’: The role of household consumption

In this paper, I analyze the causes of the prolonged slowdown of the Japanese economy in the 1990s and find that the stagnation of investment, especially private fixed investment, was the primary culprit. I then investigate the causes of the stagnation of household consumption during the 1990s and find that the stagnation of household disposable income, the decline in household wealth, and increased uncertainty about the future are among the contributing factors. Finally, I consider whether demand side factors or supply side factors were more important as causes of the prolonged slowdown of the Japanese economy in the 1990s and conclude that the former (especially misguided government policies) were probably more important.     

日本国土综合开发财政政策对中国主体功能区建设的启示

中国国家十二五规划纲要提出要实施主体功能区战略。日本针对经济发展过程中产生区域问题所采取的6次全国国土综合开发规划的财政政策,值得借鉴。中国在推进主体功能区建设过程中,应当运用差别化税收政策引导重点开发区域承接优化开发区域的产业转移,加大对重点开发区域基础设施的投入,发挥财政转移支付制度对地方财力的平衡作用。     

The role for competition policy in economic development: the South African experience

Competition policy is part of the new international orthodoxy in economic policy and, at the same time, was viewed in South Africa as a crucial element of economic transformation. This article reviews the role of competition policy in economic development and the experiences of developing countries such as Brazil and South Korea. It then assesses the effects of competition policy in South Africa after 1994, with the main focus being on the performance of the new competition institutions established in 1999. The case of the steel industry is used to assess the approach and impact of the institutions in a concentrated sector that has simultaneously undergone processes of liberalisation and domestic consolidation.     

The role of research in policy development: The creation of the IMF cereal import facility

This paper challenges the erroneous, yet growing, view that social science research has little impact upon public policymaking. The case example here is the research lending up to the creation of the cereal import facility at the International Monetary Fund. The study is divided into two parts: (1) an intellectual analysis of the major research work on the cereal facility; and (2) a political study of how this research work was picked up and translated into reality by policymakers. It concludes that social science research must be careful, timely and ‘translatable’ if it is to be effectively used by policymakers.     

The macroeconomic effects of immigration: Israel in the 1990s

The Macroeconomic Effects of Immigration: Israel in the 1990s. — The authors perform counterfactual simulations using an econometric model to estimate the macroeconomic effects of immigration in Israel. The model takes account of immigrant assimilation in labor and housing markets. They argue that wage flexibility was the key to success in immigrant absorption. In addition, the animal spirits of entrepreneurs consolidated this success. House prices, GDP, consumption, investment, unemployment and imports would have been considerably lower but for the immigration, while real wages would have been higher. The main beneficiaries were capitalists owning housing and businesses. The main losers were workers who were not owner-occupiers.