The Role of Macroeconomic Policy in Rebalancing Growth

Peter Morgan

No 266, ADBI Working Papers from Asian Development Bank Institute

Abstract: The aftermath of the global financial crisis of 2007–2009 has called the export-led growth model of Asian economies into question. This paper describes the contribution that macroeconomic policy can make to promote a rebalancing of growth away from dependence on exports to developed economies to a more sustainable pattern of growth centered on domestic and regional demand. This represents a significant departure from the traditional uses of macroeconomic policy to stabilize the economic cycle and achieve stable and low inflation. The evidence suggests that macroeconomic policy can successfully contribute to growth rebalancing. Policy measures not only can affect aggregate demand directly, but can also affect it indirectly via their “microeconomic” impacts on private sector behavior. Although in the long-term fiscal policy should be balanced to maintain government debt stability and avoid crowding out of private investment, there may be substantial scope to expand monetary and fiscal policy in the medium-term to offset the deflationary effects of an appreciating currency during periods of current account reversal. Previous experience suggests that most of the needed stimulus can be provided by monetary policy, with only a supplementary role to be played by fiscal policy. Moreover, Asian economies with large current account surpluses tend to have sufficient fiscal space.

Keywords: economic growth rebalancing; macroeconomic policy; sustainable economic growth (search for similar items in EconPapers)
JEL-codes: E21 E52 E58 E62 E64 F31 F32 H50 H55 I38 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2011-02-17
New Economics Papers: this item is included in nep-cba, nep-fdg and nep-mac
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Related works:
Journal Article: The role of macroeconomic policy in rebalancing growth (2012)
Working Paper: The Role of Macroeconomic Policy in Rebalancing Growth (2010)
Working Paper: The Role of Macroeconomic Policy in Rebalancing Growth (2010)
Working Paper: The Role of Macroeconomic Policy in Rebalancing Growth (2010)
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