The International Monetary Fund and Stabilisation Policy in Small Open Economies
As our second case-study of open-economy macroeconomics we take the example of the IMF’s involvement in policy formulation in countries that borrow from it. What policy advice does the Fund offer and is this consistent with the model of the open economy that has been described in earlier chapters of this book? If the advice is inconsistent with such a model how could it be made consistent?
KeywordsMonetary Policy Current Account Full Employment Small Open Economy Monetary Expansion
Unable to display preview. Download preview PDF.
Notes and References
- 1.Details of the various borrowing provisions available from the IMF may be ascertained by looking at the most recent Annual Report of the Fund or at various editions of the IMF Survey.Google Scholar
- 2.This is certainly somewhat of a caricature of the Fund’s approach to stabilisation. In fact, conditionality is rather more sophisticated and readers are encouraged to look at some of the extensive literature on the Fund. The Fund would, for example, certainly claim that it has attempted to encourage structural adjustment, and has worked on the supply side as well as the demand side of the economy.Google Scholar
- 3.Again, it can be noted that this implies a very narrow interpretation of the inflationary process as described in Chapter 2.Google Scholar
- 4.Information on the pattern of Fund lending may be collected from numerous sources such as International Financial Statistics.Google Scholar
- 5.It may be helpful at this point to refer back to the Hunter model of policy assignment, described in the Appendix to Chapter 6, and to see how this might be applied to the evaluation of Fund-supported programmes. Certainly the model showed how devaluation may have to be accompanied by incomes policy in order to neutralise cost inflation.Google Scholar
- 6.As noted earlier, the Fund would maintain that it has made an effort to support measures directed at achieving structural adjustment, particularly through its Extended Fund Facility, and, more recently, the Structural Adjustment Facility.Google Scholar
- 7.Overlooked here is the impact on the rate of interest, readers may wish to consider this for themselves.Google Scholar