This paper uses a consumer theory-based systemic approach to model the demand for monetary liquid asset holdings. We implement the suggestions and caveats of aggregation theory for the estimation of a demand system for liquid assets (monies) in static, dynamic and time-varying parameters setups. Our results are robust and theoretically consistent with consumer theory restrictions, as system derived from a utility maximizing framework and a well-behaved utility function. In our estimations we find stability of interest-rate and total-expenditure elasticities, in contrast to previous literature. We also document evidence that long (short) maturity rates are associated to less (more) liquid assets and that the vigorous growth of M1 during the last five of years is not accounted for by low interest rates alone. Policy implications are straightforward; there is stable relationship between monies and interest rates, but the former do not respond exclusively to the latter.
While within-region diversity of country experiences is undoubtedly large, there are certain distinct modes and trends of policies and outcomes followed by countries within a region, for reasons that probably have to do as much with economics and geographical proximity as with a common culture and history. Hence taking stock of regional development experiences in a quickly changing world is a useful exercise at the turn of the century. This article reviews the papers published in this volume on cross-regional and international development experiences with the aim of deriving lessons for Sub-Saharan Africa. Making use of large and newly made available cross-country data sets, the studies gathered here focus on various dimensions of world development: the design and implementation of macroeconomic and structural reforms, the links between macroeconomic and financial policy performance and growth, the evolution of poverty and income distribution along growth paths, and the changing role of the state in economic development.
The 1990s have seen renewed interest in themes of economic growth and development. This is a welcome change after a decade and a half during which macroeconomics was dominated by a concern with short-term adjustment and stabilization issues -- and basic problems of growth, capital accumulation, and the generation of savings were largely ignored. The authors draw three general lessons from recent literature on saving, investment, and growth: 1) Despite empirical evidence about virtuous circles of heavy saving and investment and rapid growth, the relationship between the three is complex, with causality running in several different directions; 2) Still, saving often seems to follow, rather than precede, investment and growth, contrary to the Mill-Marshall-Solow interpretation; and 3) investment and innovation are the centerpieces of growth. In this regard, the new literature on growth represents a decided (if unintended) return to tradition initiated by Marx, Schumpeter, and Keynes. Saving may not be the chief driving force behind growth, but ensuring an adequate savings level must remain a central policy concern -- to ensure enough financing for capital accumulation and to prevent inflationary pressures or balance of payments disequilibria or both. And encouraging private saving may be essential to expand investment, considering capital market imperfections and liquidity constraints on firms and households in many developing economies. Four policy conclusions emerge: 1)Public savings does notcrowd out private savings one-to-one, so increasing public saving is an effective direct way to raise national saving; 2) foreign saving should be allowed and encouraged to support domestic investment -- even if it also helps finance consumption -- as long as the macroeconomic and regulatory framework is adequate; 3) higher private saving should not be expected in response to the liberalization of interest rates. Market-determined interest rates will improve financial intermediation, the quality of portfolio choices, and the quality of investment -- but not necessarily the volume of savings. Pension reform may be a better way to mobilize domestic resources; and 4) potentially large externalities associated with investment would seem to suggest the need for anactivistinvestment policy. But a better way to promote investment and growth is a supportive policy and institutional environment, ensuring macroeconomic stability, social consensus, and a low cost of doing business.
Fiscal stabilization, a consistent foreign debt policy, more investment in public infrastructure, and a reform of investment codes would increase private investment and growth in Morocco.And reform of the financial sector.by making financial intermediation more efficienit, could imnprovc the quality of investment.The Policy, Rcnerch.hand hxiern al Afla;'s Compex sio'hies I'RI: 'A orksg Pa.lxr.to-d,sc-,:ale the fndi"S 1}' o1f 1 a orirogcss and to encourage the cxchange of ideas among Balik staff and ai) othc.imtetested in deseiopmncrt isss e w Thc papers dn* thle nd.c.s
The choice between maintaining or giving up the national currency is
determined by putting on balance the benefits of macroeconomic flexibility
derived from a floating exchange rate and an independent monetary policy, and
the microeconomic benefits derived from joining a currency union or adopting
unilaterally a foreign currency. This paper assesses this choice for Chile. The
country?s financial development and macroeconomic stability imply low
microeconomic and efficiency costs in sticking to the peso. An evaluation of
optimal currency-area criteria shows that Chile is not a natural candidate for
joining a monetary union with prospective partners in Latin America, NAFTA, or
the European Union. Unilateral dollarization is even less beneficial. Among
Southern Hemisphere countries with various exchange rate regimes, Chile would
gain the least from giving up its national currency. For a country like Chile,
subject to large idiosyncratic shocks and significant temporary price and wage
rigidity, a flexible exchange rate and an independent monetary policy anchored
to an inflation target comprise the dominant regime choice.
High instability and low growth characterize the macroeconomic performance of most developing countries. Inadequate policies are often to blame. This paper documents the empirical regularities that characterize the relationship between macroeconomic-financial policies, instability, and growth across developing and industrial nations. While successful transitions to low instability and high growth are not frequent, they have been observed in a dozen of countries. Such win-win transitions require to put into place institutions and rules that change government incentives in choosing between policies that reflect narrow interests or social conflict -- contributing to more instability and less growth -- and social welfare-maximizing policies that help growth and make economies more resilient to residual instability.
Alan Auerbach and William Gale provide a very useful assessment of the possible effects of the massive revival of discretionary fiscal policy in the current U.S. context. Largely based on a qualitative reading of the existing literature and two historical episodes, the authors give good marks to the need for a large fiscal package and to the actual size, composition, and timing of the 2009 American Recovery and Reinvestment Act (ARRA) adopted by the Obama administration. Needless to say, such positive evaluation is controversial, as a significant share of the profession has raised serious concerns about the benefits of fiscal activism.
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