Analysing the Distributional Impacts of Stabilisation Policy with a CGE Model: Illustrations and Critique for Zimbabwe

Sonja Fagernäs ()

No 4, Working Papers from Economics and Statistics Analysis Unit (ESAU), Overseas Development Institute

Abstract: ESAU Working Paper 4 applies a standard (IFPRI) macroeconomic CGE model to Zimbabwe to ascertain the likely income distribution impacts of alternative policy instruments for stabilising the economy, specifically for eliminating the current account deficit, viz. devaluation or fiscal adjustment. The author finds, however, that the model is unable for structural reasons to simulate the impact of expenditure reduction on the current account; its closure procedure offsets decreases in public consumption with increases in private consumption. This leaves devaluation as the only analysable policy instrument for balance of payments adjustment. Devaluation is likely to be contractionary for GDP, and in all sectors except agriculture and export-oriented production. Profits and labour incomes in commercial farming rise, but in other sectors fall.

Keywords: CGE model; stabilisation policy; Zimbabwe; PSIA; expenditure switching; expenditure reduction (search for similar items in EconPapers)
Pages: 42 pages
Date: 2004-04
New Economics Papers: this item is included in nep-afr, nep-dev and nep-mac
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Published as ISBN 0 85003 700X

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