Macroeconomic Adjustment in Developing Countries

International Monetary Fund

No 1988/013, IMF Working Papers from International Monetary Fund

Abstract: The paper deals with the two parts of the short-run adjustment problem in developing countries: the improvement of the current account and the reduction of inflation, the main cause in both cases being usually a fiscal deficit. It is shown how the two parts are related. Distinctions are made between the primary adjustment cost, which is inevitable, and the secondary cost which results, for example, from failure to devalue or from real wage rigidity. A sectoral cost benefit analysis is suggested. Reducing inflation involves both an inflation tax replacement and a price adjustment problem, and “heterodox” policies designed to deal with the latter are analyzed.

Keywords: WP; fiscal deficit; adjustment cost; current account deficit; anti-inflation program; adjustment problem; expenditure reduction; money supply; inflation financing; government expenditure; private sector; current account problem; Government debt management; Inflation; Current account; Current account deficits (search for similar items in EconPapers)
Pages: 30
Date: 1988-01-01
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Citations: View citations in EconPapers (4)

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