Macro policy in the tropics: How sensible people stand |
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| Authors: | Lance Taylor |
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| Institution: | 1. Centre for Human Factors and Sociotechnical Systems, University of the Sunshine Coast, Maroochydore, Queensland, Australia;2. Appleton Institute for Behavioural Science, Central Queensland University, Wayville, South Australia, Australia;1. Columbia University and the Centre for Economic Policy Research, 3022 Broadway, Uris Hall, room 411, New York 10027, NY, United States;2. Board of Governors of the Federal Reserve System, Washington, DC 20551, United States;3. Gabelli School of Business, Fordham University, 45 Columbus Avenue, room 619, New York 10023, NY, United States;1. James Madison University, United States;2. Professor emerita, James Madison University, United States;1. University of Zilina, Univerzitná 8215/1, 010 01, Zilina, Slovakia |
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| Abstract: | A model for macro policy analysis is set out, incorporating an inflation theory based on distributional conflict, output and current account adjustment mechanisms, and the money market. Classic structuralist results about contractionary devaluation and stagflationary monetary restriction are derived. Alternative closures of the model are considered — monetarism and external strangulation (or foreign exchange bonanzas) — and it is extended to deal with interest rate reform. Short-term stabilization issues are analyzed — monetary and fiscal policy, import quotas and export subsidies as opposed to devaluation, financial market complications, food subsidies and public sector pricing, and orthodox and heterodox anti-inflationary programs. Finally, medium-term processes of inflation, distribution and growth are described. An example of an irreversible contractionary shock which leads the economy from a distributionally favorable to an unfavorable steady state is presented. |
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