Publication: From Financieristic to Real Macroeconomics: Seeking Development Convergence in Emerging Economies
Date
2008
ISSN
Published
2008
Author(s)
Ffrench-Davis, Ricardo
Abstract
Macroeconomic "fundamentals"
are a most relevant variable for economic development.
However, there is wide misunderstanding about which are the
"sound macroeconomic fundamentals," contributing
to sustained economic growth. The approach in fashion in the
mainstream world and international finance institutions
(IFIs) emphasizes macroeconomic balances of two pillars: low
inflation and fiscal balances. The author calls it
financieristic macroeconomic balances. Additionally, a
frequent assertion in the conventional literature is that an
open capital account contributes to impose macroeconomic
discipline in emerging economies (EEs). There is strong
evidence that financieristic balances have not provided a
macroeconomic environment contributing to 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 gross domestic product (GDP), is a
crucial part of a third pillar for real macroeconomic
balances, which has frequently failed in neoliberal
experiences. Similarly crucial parts are well-aligned
macro-prices, like interest and exchange rates. Frequently,
these prices and aggregate demand have behaved as outliers,
as reflected in economies working either well below
potential GDP (the most frequent result), or overheated,
with a booming aggregate demand and a large external
deficit. This paper analyses alternative macroeconomic
environments faced by firms and workers in the productive
side of the economy (the producers of GDP), and the
interrelationship between financial and real variables. The
author analyzes alternative structural countercyclical
fiscal policies, intermediate exchange rate policies, and
capital account approaches.
Citation
“Ffrench-Davis, Ricardo. 2008. From Financieristic to Real Macroeconomics: Seeking Development Convergence in Emerging Economies. Commission on Growth and Development Working Paper;No. 44. © World Bank, Washington, DC. http://hdl.handle.net/10986/28018 License: CC BY 3.0 IGO.”