6 A Broad View of Macroeconomic Stability

Abstract

Abstract This chapter recommends a broad concept of macroeconomic stability, whereby ‘sound macroeconomic frameworks’ include not only price stability and sound fiscal policies, but also a well-functioning real economy, sustainable debt ratios, and healthy public and private sector balance sheets. These multiple dimensions imply the use of multiple policy instruments. The chapter elaborates a framework for developing countries that involves active use of countercyclical macroeconomic policies (exchange rate, monetary, and fiscal), together with capital management techniques (capital account regulations and prudential rules incorporating macroeconomic dimensions). It also explores the role of international financial institutions in facilitating developing countries' use of countercyclical macroeconomic policies.

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