The global financial crisis has proved that economic realities are very different from the traditional assumptions of macroeconomics. Macroeconomic Policies for Emerging and Developing Economies provides a contemporary analytical account and discusses the current debates on the theory and practices of macroeconomic policies of developing economies emerging from the crisis. It deals with issues relating to openness, capital flows and exchange rate policies as well as macro-financial policies. It underscores two important points: the need to design a development strategy that takes into account the economic context of the countries concerned, and for well-regulated macro-financial policies that would help promote the objects of sustainable growth with price and financial stability. This engaging and unrivalled guide to macroeconomic policy goes beyond the standard macroeconomists’ tool kit of monetary, fiscal and exchange rate policies and includes topics such as development strategies and macro-financial policies.
Chapter 2: Development Strategy: The Fountainhead of Macroeconomic Policies
Development Strategy: The Fountainhead of Macroeconomic Policies
The First Sip
Strictly speaking, inclusion of development strategy when discussing ‘MEPs’ appear to be out of sync. After all, MEPs are concerned with stabilization of business cycles which are essentially short run in nature, whereas development/growth strategy is for transforming a developing/developed economy to a higher long-term growth trajectory. More importantly, while MEPs are primarily geared towards demand management, development/growth strategy is oriented around easing supply constraints or utilizing factor endowments maximally, or, as economists would say, optimally. However, as we argue in the following, such distinction is often facile and for a policy maker MEPs and development/growth strategies are intimately interlinked.
Imagine that you are heading a government of a newly ...