Cover: The Economics of Adjustment and Growth in HARDCOVER

The Economics of Adjustment and Growth

Second Edition

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HARDCOVER

$136.00 • £108.95 • €122.50

ISBN 9780674015784

Publication Date: 09/30/2004

Short

784 pages

6-3/8 x 9-1/4 inches

93 line illustrations, 12 tables

World

  • Acknowledgments
  • Introduction and Overview
  • 1. Budget Constraints and Aggregate Accounts
    • 1.1 Production, Income, and Expenditure
    • 1.2 A Consistency Accounting Matrix
      • 1.2.1 Current Account Transactions
      • 1.2.2 Capital Account Transactions
    • 1.3 Identities and Budget Constraints
      • 1.3.1 Gross Domestic Product and Absorption
      • 1.3.2 The Government Budget Constraint
      • 1.3.3 The Private Sector Budget Constraint
      • 1.3.4 The External Sector Budget Constraint
      • 1.3.5 The Balance Sheet of the Financial System
      • 1.3.6 The Savings-Investment Balance
    • 1.4 Social Accounting Matrices
      • 1.4.1 Activity, Commodity, and Factor Accounts
      • 1.4.2 Institutions and the Capital Account
      • 1.4.3 The Rest-of-the-World Account
      • 1.4.4 SAMs and Economy-wide Models
    • 1.5 Summary
  • 2. Consumption, Saving, and Investment
    • 2.1 Consumption and Saving
      • 2.1.1 The Permanent Income Hypothesis
      • 2.1.2 The Life-Cycle Model
        • The Basic Framework
        • Age and the Dependency Ratio
      • 2.1.3 Other Determinants
        • Income Levels and Income Uncertainty
        • Intergenerational Links
        • Liquidity Constraints
        • Inflation and Macroeconomic Stability
        • Government Saving
        • Expectations, Taxation, and Debt
        • Social Security, Pensions, and Insurance
        • Changes in the Terms of Trade
        • Financial Deepening
        • Household and Corporate Saving
      • 2.1.4 Empirical Evidence
    • 2.2 Investment
      • 2.2.1 The Flexible Accelerator
      • 2.2.2 The User Cost of Capital
      • 2.2.3 Uncertainty and Irreversibility
      • 2.2.4 Other Determinants
        • Credit Rationing
        • Foreign Exchange Constraint
        • The Real Exchange Rate
        • Public Investment
        • Macroeconomic Instability
        • The Debt Burden Effect
      • 2.2.5 Empirical Evidence
    • 2.3 Summary
    • Appendix - Income Uncertainty and Precautionary Saving
  • 3. Fiscal Deficits, Public Debt, and the Current Account
    • 3.1 Structure of Public Finances
      • 3.1.1 Conventional Sources of Revenue and Expenditure
      • 3.1.2 Seigniorage and Inflationary Finance
      • 3.1.3 Quasi-Fiscal Activities and Contingent Liabilities
    • 3.2 The Government Budget Constraint
    • 3.3 Assessing the Stance of Fiscal Policy
    • 3.4 Deficit Rules, Budget Ceilings, and Fiscal Transparency
    • 3.5 Fiscal Imbalances and External Deficits
    • 3.6 Consistency and Sustainability
      • 3.6.1 A Consistency Framework
      • 3.6.2 Fiscal and External Sustainability
    • 3.7 Sustainability and Solvency Constraints
    • 3.8 Commodity Price Shocks and Deficits
    • 3.9 Can Fiscal Austerity Be Expansionary?
    • 3.10 Summary
  • 4. The Financial System and Monetary Policy
    • 4.1 The Financial System
      • 4.1.1 Financial Repression
      • 4.1.2 Banks and Financial Intermediation
    • 4.2 Money Demand
    • 4.3 Indirect Instruments of Monetary Policy
    • 4.4 Credit Rationing
    • 4.5 The Transmission of Monetary Policy
      • 4.5.1 Interest Rate Effects
      • 4.5.2 Exchange Rate Effects
      • 4.5.3 Asset Prices and Balance Sheet Effects
        • Net Worth and the Finance Premium
        • The Financial Accelerator
      • 4.5.4 Credit Availability Effects
      • 4.5.5 The Role of Expectations
    • 4.6 Monetary Policy: Inflation Targeting
      • 4.6.1 Strict Inflation Targeting
      • 4.6.2 Policy Trade-offs and Flexible Inflation Targeting
      • 4.6.3 Comparison with Intermediate Target Strategies
        • Monetary vs. Inflation Targeting
        • Exchange Rate vs. Inflation Targeting
      • 4.6.4 Requirements for Inflation Targeting
    • 4.7 Monetary Policy in a Dollarized Economy
      • 4.7.1 Persistence of Dollarization
      • 4.7.2 Implications of Dollarization
    • 4.8 Summary
    • Appendix - Inflation Targeting with Forward-Looking Expectations
  • 5. Exchange Rate Regimes
    • 5.1 The Nature of Exchange Rate Regimes
      • 5.1.1 Pegged Exchange Rate Regimes
      • 5.1.2 Flexible Exchange Rate Regimes
      • 5.1.3 Band Regimes
      • 5.1.4 Multiple Exchange Rate Regimes
    • 5.2 Evidence on Exchange Rate Regimes
      • 5.2.1 General Trends
      • 5.2.2 Exchange Rate Bands
    • 5.3 Choosing an Exchange Rate Regime
      • 5.3.1 Some Conceptual Issues
      • 5.3.2 The Evidence
      • 5.3.3 A Practical Guide
    • 5.4 Trade-offs and Exchange Rate Credibility
    • 5.5 Exchange Rates and the Trade Balance
      • 5.5.1 Measuring Competitiveness
      • 5.5.2 Devaluation and the Trade Balance
    • 5.6 Devaluation with Imported Inputs
    • 5.7 Summary
  • 6. Inflation and Disinflation Programs
    • 6.1 Sources of Inflation
      • 6.1.1 Hyperinflation and Chronic Inflation
      • 6.1.2 Fiscal Deficits, Seigniorage, and Inflation
      • 6.1.3 Other Sources of Chronic Inflation
        • Wage Inertia
        • Exchange Rates and the Terms of Trade
        • The Frequency of Price Adjustment
        • Food Prices
        • Time Inconsistency and the Inflation Bias
    • 6.2 Nominal Anchors in Disinflation
      • 6.2.1 Controllability and Effectiveness
      • 6.2.2 Adjustment Paths and Relative Costs
      • 6.2.3 Credibility, Fiscal Commitment, and Flexibility
      • 6.2.4 The Flexibilization Stage
    • 6.3 Disinflation: The Role of Credibility
      • 6.3.1 Sources of Credibility Problems
      • 6.3.2 Enhancing Credibility
        • Big Bang and Gradualism
        • Central Bank Independence
        • Price Controls
        • Aid as a Commitment Mechanism
    • 6.4 Two Stabilization Experiments
      • 6.4.1 Egypt, 1992-97
      • 6.4.2 Uganda, 1987-95
    • 6.5 Summary
    • Appendix - Inflation Persistence and Policy Credibility
  • 7. Capital Inflows: Causes and Policy Responses
    • 7.1 Capital Flows: Recent Evidence
    • 7.2 How Volatile Are Capital Flows?
    • 7.3 Domestic and External Factors
    • 7.4 Macroeconomic Effects of Capital Inflows
    • 7.5 External Shocks and Capital Flows
      • 7.5.1 Households
      • 7.5.2 Firms and the Labor Market
      • 7.5.3 Commercial Banks
      • 7.5.4 Government and the Central Bank
      • 7.5.5 Equilibrium Conditions
        • The Money Market
        • The Credit Market
        • The Market for Home Goods
      • 7.5.6 Graphical Solution
      • 7.5.7 Rise in the World Interest Rate
    • 7.6 Policy Responses to Capital Inflows
      • 7.6.1 Sterilization
      • 7.6.2 Exchange Rate Flexibility
      • 7.6.3 Fiscal Adjustment
      • 7.6.4 Capital Controls
        • Forms of Capital Controls
        • Pros and Cons of Capital Controls
      • 7.6.5 Changes in Statutory Reserve Requirements
      • 7.6.6 Other Policy Responses
    • 7.7 Summary
    • Appendix - Measuring the Degree of Capital Mobility
  • 8. Financial Crises and Financial Volatility
    • 8.1 Sources of Exchange Rate Crises
      • 8.1.1 Inconsistent Fundamentals
      • 8.1.2 Rational Policymakers and Self-Fulfilling Crises
      • 8.1.3 Third-Generation Models
    • 8.2 Currency Crises: Three Case Studies
      • 8.2.1 The 1994 Crisis of the Mexican Peso
      • 8.2.2 The 1997 Thai Baht Crisis
      • 8.2.3 The 1999 Brazilian Real Crisis
    • 8.3 Banking and Currency Crises
      • 8.3.1 Causes of Banking Crises
      • 8.3.2 Self-Fulfilling Bank Runs
      • 8.3.3 Links between Currency and Banking Crises
      • 8.3.4 Liquidity Crises in an Open Economy
    • 8.4 Predicting Financial Crises
    • 8.5 Financial Volatility: Sources and Effects
      • 8.5.1 Volatility of Capital Flows
      • 8.5.2 Herding Behavior and Contagion
      • 8.5.3 The Tequila Effect and the Asia Crisis
    • 8.6 Coping with Financial Volatility
      • 8.6.1 Macroeconomic Discipline
      • 8.6.2 Information Disclosure
      • 8.6.3 The Tobin Tax
    • 8.7 Summary
    • Appendix - The Mechanics of Speculative Attacks and Interest Rate Defense
  • 9. Policy Tools For Macroeconomic Analysis
    • 9.1 Assessing Business Cycle Regularities
    • 9.2 Financial Programming
      • 9.2.1 The Polak Model
      • 9.2.2 An Extended Framework
    • 9.3 The World Bank RMSM Model
    • 9.4 The Merged Model and RMSM-X
      • 9.4.1 The Merged IMF-World Bank Model 380
      • 9.4.2 The RMSM-X Framework
    • 9.5 Three-Gap Models
    • 9.6 The 1-2-3 Model
      • 9.6.1 The Minimal Setup
      • 9.6.2 An Adverse Terms-of-Trade Shock
      • 9.6.3 Investment, Saving, and the Government
    • 9.7 Lags and the Adjustment Process
    • 9.8 Summary
    • Appendix - Money Demand and Cointegration
  • 10. Growth, Poverty, and Inequality: Some Basic Facts
    • 10.1 A Long-Run Perspective
    • 10.2 The Power of Compounding
      • 10.2.1 Growth and Standards of Living
      • 10.2.2 How Fast Do Economies Catch Up?
    • 10.3 Some Basic Facts
      • 10.3.1 Output Growth, Population, and Fertility
      • 10.3.2 Saving, Investment, and Growth
      • 10.3.3 Growth and Poverty
      • 10.3.4 Inequality, Growth, and Development
        • The Kuznets Curve
        • Education and Income Distribution
      • 10.3.5 Trade, Inflation, and Financial Deepening
    • 10.4 Summary
    • Appendix - Common Measures of Poverty and Inequality
  • 11. Growth and Technological Process: The Solow-Swan Model
    • 11.1 Basic Structure and Assumptions
    • 11.2 The Dynamics of Capital and Output
    • 11.3 A Digression on Low-Income Traps
    • 11.4 Population, Savings, and Output
    • 11.5 The Speed of Adjustment
    • 11.6 Model Predictions and Empirical Facts
    • 11.7 Summary
    • Appendix - Dynamics of k, the Output Effect of s, and the Speed of Adjustment
  • 12. Knowledge, Humancapital, and Endogenous Growth
    • 12.1 The Accumulation of Knowledge
      • 12.1.1 Knowledge as a By-Product: Learning by Doing
      • 12.1.2 The Production of Knowledge
    • 12.2 Human Capital and Returns to Scale
      • 12.2.1 The Mankiw-Romer-Weil Model
      • 12.2.2 The AK Model
    • 12.3 Human Capital and Public Policy
    • 12.4 Other Determinants of Growth
      • 12.4.1 Fiscal Policy
        • Government Spending
        • The Dual Effects of Taxation
        • Budget Deficits and Growth
      • 12.4.2 Inflation and Macroeconomic Stability
      • 12.4.3 Trade and International Financial Openness
      • 12.4.4 Financial Development
      • 12.4.5 Political Factors and Income Inequality
      • 12.4.6 Institutions and the Allocation of Talent
    • 12.5 Summary
    • Appendix - Determinants and Costs of Corruption
  • 13. The Determinants of Economic Growth: An Empirical Overview
    • 13.1 Growth Accounting
    • 13.2 The East Asian “Miracle”
    • 13.3 Growth Regressions and Convergence
      • 13.3.1 Diminishing Returns and Convergence
      • 13.3.2 Convergence and Cross-Section Regressions
      • 13.3.3 Testing the Mankiw-Romer-Weil Model
    • 13.4 The Empirics of Growth
    • 13.5 The Econometric Evidence: Overview
      • 13.5.1 Saving and Physical and Human Capital
      • 13.5.2 Fiscal Variables
      • 13.5.3 Inflation and Macroeconomic Stability
      • 13.5.4 Financial Factors
      • 13.5.5 External Trade and Financial Openness
      • 13.5.6 Political Variables and Income Inequality
  • 14. Trade and Labor Market Reforms
    • 14.1 Trade Liberalization
      • 14.1.1 The Gains from Trade
      • 14.1.2 Recent Evidence on Trade Reforms
      • 14.1.3 Trade Reform, Employment, and Wage Inequality
      • 14.1.4 Obstacles to Trade Reform
    • 14.2 Trade and Regional Integration
    • 14.3 Reforming Labor Markets
      • 14.3.1 Labor Markets in Developing Countries
        • Basic Structure
        • Employment Distribution and Unemployment
        • Wage Formation and Labor Market Segmentation
        • Minimum Wages
        • Trade Unions and the Bargaining Process
      • 14.3.2 Labor Market Reforms and Flexibility
    • 14.4 Summary
  • 15. Fiscal Adjustment and Financial Sector Reforms
    • 15.1 Fiscal Adjustment
      • 15.1.1 Reforming Tax Systems
        • The Excess Burden of Taxation
        • Fighting Tax Evasion
        • Guidelines for Reform
      • 15.1.2 Expenditure Control and Management
      • 15.1.3 Civil Service Reform
      • 15.1.4 Fiscal Decentralization
    • 15.2 Pension Reform
    • 15.3 Interest Rate Liberalization
    • 15.4 Sources of Financial Fragility
    • 15.5 Strengthening Financial Systems
    • 15.6 Summary
  • 16. Aid, External Debt, and Growth
    • 16.1 The Effects of Foreign Aid
      • 16.1.1 Aid Effectiveness and the Fungibility Problem
      • 16.1.2 Aid, Investment, and Growth
        • The Situation without Aid
        • The Effects of Aid on Investment
      • 16.1.3 Aid and Growth: Cross-Country Evidence
    • 16.2 Growth, Debt, and Fiscal Adjustment
    • 16.3 The Debt Overhang and the Debt Laffer Curve
    • 16.4 Measuring the Debt Burden
      • 16.4.1 Conventional and Present Value Indicators
      • 16.4.2 Sustainability and External Solvency
    • 16.5 Debt Rescheduling and Debt Relief
    • 16.6 Summary
    • Appendix - The Theory of Stages in the Balance of Payments
  • 17. Sequencing, Gradualism, and the Political Economy of Adjustment
    • 17.1 Stabilization and Structural Adjustment
    • 17.2 The Order of Liberalization
      • 17.2.1 Liberalization of External Accounts
      • 17.2.2 Financial Reform and the Capital Account
      • 17.2.3 A Formal Framework
        • Analysis of Liberalization Policies
        • Financial Deregulation
        • Relaxation of Capital Controls
        • Trade Liberalization
    • 17.3 Sequencing and Labor Market Reforms
    • 17.4 Political Constraints and Reforms
      • 17.4.1 Modeling Political Conflict
      • 17.4.2 The Benefits of Crises
      • 17.4.3 Political Acceptability and Sustainability
    • 17.5 Shock Treatment or Gradual Approach?
    • 17.6 Summary
    • Appendix - Calculating the Welfare Effects of Reform
  • References
  • Figure Credits
  • Index

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