Ffrench-Davis, Ricardo2017-08-282017-08-282008https://hdl.handle.net/10986/28018Macroeconomic "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.en-USCC BY 3.0 IGOABSORPTIVE CAPACITYADVANCED ECONOMIESAGGREGATE DEMANDAGGREGATE SUPPLYANNUAL GROWTHAPPETITE FOR RISKAVERAGE PRODUCTIVITYBONDSBUDGET DEFICITSBUSINESS CYCLEBUSINESS CYCLESCAPITAL ACCOUNTSCAPITAL FLIGHTCAPITAL FLIGHTSCAPITAL FLOWSCAPITAL FORMATIONCAPITAL GAINSCAPITAL INFLOWSCAPITAL MARKETSCAPITAL OUTFLOWSCAPITAL STOCKCENTRAL BANKCOMPARATIVE ADVANTAGESCOMPETITIVENESSCONSUMERSCREDIBILITYCREDIT BOOMCURRENCYCURRENT ACCOUNTCURRENT ACCOUNT BALANCECURRENT ACCOUNT DEFICITCURRENT ACCOUNT DEFICITSDEBTDEBT CRISISDEPRECIATIONDEVALUATIONDEVELOPMENT STRATEGIESDISEQUILIBRIUMDOMESTIC CURRENCIESDOMESTIC CURRENCYDOMESTIC DEMANDDOMESTIC GOODSDOMESTIC INTEREST RATESDOMESTIC MACROECONOMIC POLICIESDOMESTIC MARKETSDOMESTIC PRICEDOMESTIC PRICESDOMESTIC SAVINGSDOWNWARD PRESSURESDURABLE GOODSDUTCH DISEASEECONOMETRICSECONOMIC ACTIVITYECONOMIC FLUCTUATIONSECONOMIC GROWTHECONOMIC RENTSECONOMIC SITUATIONECONOMIC STRUCTURESEQUILIBRIAEXCHANGE RATE ANCHOREXCHANGE RATE APPRECIATIONEXCHANGE RATE POLICIESEXCHANGE RATE SYSTEMSEXCHANGE RATESEXPLANATORY VARIABLEEXPORT MARKETSEXPORTSEXPOSUREEXTERNAL DEFICITEXTERNAL DEFICITSEXTERNAL FINANCINGEXTERNAL SHOCKSEXTERNALITIESFACTOR MARKETSFINANCIAL ASSETSFINANCIAL CRISESFINANCIAL INSTABILITYFINANCIAL INTERMEDIATIONFINANCIAL LIBERALIZATIONFINANCIAL MARKETFINANCIAL MARKETSFINANCIAL REFORMSFINANCIAL SECTORFINANCIAL TRANSACTIONFISCAL BALANCEFISCAL BALANCESFISCAL DEFICITSFISCAL DISCIPLINEFISCAL POLICIESFLEXIBLE EXCHANGE RATEFLEXIBLE EXCHANGE RATE REGIMESFOREIGN CURRENCYFOREIGN CURRENCY MARKETFOREIGN EXCHANGEGDPGLOBALIZATIONGROWTH RATEGROWTH RATESHUMAN CAPITALIMBALANCESIMPORTSINCOMEINCOMPLETE MARKETSINDEBTEDNESSINFLATIONINFLATION RATEINFLATION TARGETINFLATION TARGETINGINFLATION TAXINFLATIONARY PRESSURESINFLATIONARY PROCESSESINTEREST RATEINTEREST RATESINTERMEDIATE EXCHANGE RATEINTERNATIONAL CAPITAL MARKETSINTERNATIONAL FINANCIAL INSTITUTIONSINTERNATIONAL FINANCIAL MARKETSINTERNATIONAL FINANCIAL SYSTEMINTERNATIONAL INTERESTINTERNATIONAL INTEREST RATESINTERNATIONAL MARKETINTERNATIONAL MARKETSINTERNATIONAL TRADEINVENTORYINVESTMENT OPPORTUNITIESINVESTMENT RATIOINVESTMENT RATIOSLABOR FORCELDCSLEVEL OF INVESTMENTLIQUID MARKETSLIQUIDITYLIQUIDITY CONSTRAINTSLOCAL CURRENCYMACROECONOMIC ADJUSTMENTMACROECONOMIC ADJUSTMENTSMACROECONOMIC CONDITIONSMACROECONOMIC INSTABILITYMACROECONOMIC MANAGEMENTMACROECONOMIC POLICIESMACROECONOMIC POLICYMACROECONOMIC VARIABLESMACROECONOMICSMARKET ECONOMYMARKET TRANSACTIONSMONETARY POLICIESMONETARY POLICYMONETARY POLICY REGIMEMONEY SUPPLYNATIONAL INCOMENATURAL RESOURCESNEGATIVE EXTERNALITIESNEWLY INDUSTRIALIZED COUNTRIESNOMINAL ANCHOROIL PRICEOPEN CAPITAL ACCOUNTOPEN ECONOMIESOUTPUT GAPOUTPUT GAPSPERMANENT INCOMEPOTENTIAL OUTPUTPOVERTY REDUCTIONPRICE FLUCTUATIONSPRICE INDEXPRICE STABILITYPRIVATE CAPITALPRODUCTION FUNCTIONPRODUCTIVE ASSETSPRODUCTIVE SYSTEMSPRODUCTIVITYPUBLIC DEFICITSPUBLIC EXPENDITUREPUBLIC INVESTMENTPURCHASING POWERRAPID GROWTHRATE OF INFLATIONREAL EXCHANGE RATEREAL EXCHANGE RATESREAL INTEREST RATESRECESSIONRECESSIONSRELATIVE PRICESRELATIVE WEIGHTRESTRICTIVE MONETARY POLICIESREVALUATIONSRISK MANAGEMENTSAVINGSSLOW GROWTHSTOCK MARKETSTOCK PRICESSUPPLY SIDESURPLUSESTAX INCREASESTEQUILA CRISISTOTAL FACTOR PRODUCTIVITYTRADE LIBERALIZATIONTRADE POLICIESTRADE REFORMSTRADE SHOCKSUNCERTAINTYUNEMPLOYMENTVALUE ADDEDVOLATILITY OF CAPITALWAGESWEALTHWORLD ECONOMYWORLD INTEREST RATESWORLD MARKETSWorking PaperWorld Bank10.1596/28018