Macroeconomic Policies, Instability and Growth in the World

Abstract

High instability and low growth characterise the macroeconomic performance of most developing countries. Inadequate policies are often to blame. This paper documents the empirical regularities that characterise the relationships among 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 countries. Such win-win transitions require that institutions and rules be put in place to change government incentives for choosing between policies that reflect narrow interests or social conflict — contributing to more instability and less growth — and social welfare maximising policies that help growth and make economies more resilient to residual instability.

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