Nothing Special   »   [go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/p/eab/develo/23271.html
   My bibliography  Save this paper

The Role of Macroeconomic Policy in Rebalancing Growth

Author

Listed:
  • Peter J. Morgan

    (Asian Development Bank Institute (ADBI))

Abstract
The aftermath of the global financial crisis of 2007–2009 has called the export-led growth model of Asian economies into question. This paper describes the contribution that macroeconomic policy can make to promote a rebalancing of growth away from dependence on exports to developed economies to a more sustainable pattern of growth centered on domestic and regional demand. This represents a significant departure from the traditional uses of macroeconomic policy to stabilize the economic cycle and achieve stable and low inflation. The evidence suggests that macroeconomic policy can successfully contribute to growth rebalancing. Policy measures not only can affect aggregate demand directly, but can also affect it indirectly via their “microeconomic†impacts on private sector behavior. Although in the long-term fiscal policy should be balanced to maintain government debt stability and avoid crowding out of private investment, there may be substantial scope to expand monetary and fiscal policy in the medium-term to offset the deflationary effects of an appreciating currency during periods of current account reversal. Previous experience suggests that most of the needed stimulus can be provided by monetary policy, with only a supplementary role to be played by fiscal policy. Moreover, Asian economies with large current account surpluses tend to have sufficient fiscal space. The evidence suggests that excessive savings rather than insufficient investment is the main factor behind high current account surpluses in Asian economies. This implies that measures to encourage consumption, either by raising the level of household disposable income or reducing the savings rate are likely to have the highest payoff in terms of reducing imbalances. Increased spending on social protection, including health insurance, unemployment insurance and pensions, as well as investment in education, are seen as key ways to reduce household demand for precautionary savings. Governments can raise investment spending directly through increased government investment, especially infrastructure investment. There also may be large payoffs to making investments to improve the investment climate, thereby encouraging private investment. Cuts in corporate tax rates and government support for deepening of financial markets can also encourage investment, including improving the infrastructure for corporate bond markets, developing credit databases and other infrastructure for SMEs, and developing the infrastructure for microfinance. Cuts in export subsidies and foreign exchange intervention can cut net exports directly. Improvement of frameworks for macroeconomic and financial stability can also support domestic demand by reducing uncertainty and the need for precautionary savings. This includes giving more explicit weight to financial stability as an objective of monetary policy, developing a macroprudential framework for financial surveillance and regulation, and refining policy tools for management of capital flows.

Suggested Citation

  • Peter J. Morgan, 2010. "The Role of Macroeconomic Policy in Rebalancing Growth," Development Economics Working Papers 23271, East Asian Bureau of Economic Research.
    • Handle: RePEc:eab:develo:23271
    as

    Download full text from publisher

    File URL: http://www.eaber.org/node/23271
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Barry Eichengreen, 2010. "Lessons of the crisis for emerging markets," International Economics and Economic Policy, Springer, vol. 7(1), pages 49-62, May.
    2. Filardo, Andrew & Genberg, Hans, 2010. "Monetary Policy Strategies in the Asia and Pacific Region: What Way Forward?," ADBI Working Papers 195, Asian Development Bank Institute.
    3. Shin-Yi Chou & Jin-Tan Liu & James Hammitt, 2006. "Households’ precautionary behaviors—the effects of the introduction of National Health Insurance in Taiwan," Review of Economics of the Household, Springer, vol. 4(4), pages 395-421, December.
    4. Prasad, Eswar S., 2009. "Is the Chinese growth miracle built to last?," China Economic Review, Elsevier, vol. 20(1), pages 103-123, March.
    5. Adams, Charles & Ferrarini, Benno & Park, Donghyun, 2010. "Fiscal Sustainability in Developing Asia," ADB Economics Working Paper Series 205, Asian Development Bank.
    6. Charles Yuji Horioka & Junmin Wan, 2007. "The Determinants of Household Saving in China: A Dynamic Panel Analysis of Provincial Data," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(8), pages 2077-2096, December.
    7. Marcos D. Chamon & Eswar S. Prasad, 2010. "Why Are Saving Rates of Urban Households in China Rising?," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(1), pages 93-130, January.
    8. Joshua Aizenman & Jaewoo Lee, 2007. "International Reserves: Precautionary Versus Mercantilist Views, Theory and Evidence," Open Economies Review, Springer, vol. 18(2), pages 191-214, April.
    9. Prema-Chandra Athukorala & Pang-Long Tsai, 2003. "Determinants of Household Saving in Taiwan: Growth, Demography and Public Policy," Journal of Development Studies, Taylor & Francis Journals, vol. 39(5), pages 65-88.
    10. Eswar S. Prasad, 2011. "Rebalancing Growth in Asia," International Finance, Wiley Blackwell, vol. 14(1), pages 27-66, April.
    11. Feng, Jin & He, Lixin & Sato, Hiroshi, 2011. "Public pension and household saving: Evidence from urban China," Journal of Comparative Economics, Elsevier, vol. 39(4), pages 470-485.
    12. Chou, Shin-Yi & Liu, Jin-Tan & Hammitt, James K., 2003. "National Health Insurance and precautionary saving: evidence from Taiwan," Journal of Public Economics, Elsevier, vol. 87(9-10), pages 1873-1894, September.
    13. Masahiro Kawai & Michael Pomerleano, 2011. "Regulating Systemic Risk," World Scientific Book Chapters, in: Asli Demirgüç-Kunt & Douglas D Evanoff & George G Kaufman (ed.), The International Financial Crisis Have the Rules of Finance Changed?, chapter 10, pages 127-153, World Scientific Publishing Co. Pte. Ltd..
    14. repec:zbw:bofitp:2009_002 is not listed on IDEAS
    15. Gill Hammond & Ravi Kanbur & Eswar Prasad (ed.), 2009. "Monetary Policy Frameworks for Emerging Markets," Books, Edward Elgar Publishing, number 13504.
    16. Jha, Shikha & Prasad, Eswar & Terada-Hagiwara, Akiko, 2009. "Saving in Asia: Issues for Rebalancing Growth," ADB Economics Working Paper Series 162, Asian Development Bank.
    17. Thorbecke, Willem, 2010. "Investigating the Effect of Exchange Rate Changes on the People's Republic of China's Processed Exports," ADBI Working Papers 202, Asian Development Bank Institute.
    18. Mr. Emanuele Baldacci & Ding Ding & Mr. David Coady & Giovanni Callegari & Pietro Tommasino & Jaejoon Woo & Mr. Manmohan S. Kumar, 2010. "Public Expenditures on Social Programs and Household Consumption in China," IMF Working Papers 2010/069, International Monetary Fund.
    19. Mr. Joshua Aizenman & Mr. Jaewoo Lee, 2005. "International Reserves: Precautionary vs. Mercantilist Views, Theory and Evidence," IMF Working Papers 2005/198, International Monetary Fund.
    20. Schou-Zibell, Lotte & Madhur, Srinivasa, 2010. "Regulatory Reforms for Improving the Business Environment in Selected Asian Economies - How Monitoring and Comparative Benchmarking Can Provide Incentive for Reform," Working Papers on Regional Economic Integration 40, Asian Development Bank.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Dewandaru, Ginanjar & Masih, Rumi & Masih, A. Mansur M., 2015. "Why is no financial crisis a dress rehearsal for the next? Exploring contagious heterogeneities across major Asian stock markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 419(C), pages 241-259.
    2. Heshmati, Almas & Kim, Jungsuk, 2014. "A Survey of the Role of Fiscal Policy in Addressing Income Inequality, Poverty Reduction and Inclusive Growth," IZA Discussion Papers 8119, Institute of Labor Economics (IZA).
    3. Vincent C.S. Lim & Victor Pontines, 2012. "Global Imbalances: A Primer," Staff Papers, South East Asian Central Banks (SEACEN) Research and Training Centre, number sp86, April.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Clovis Kerdrain & Isabell Koske & Isabelle Wanner, 2011. "Current Account Imbalances: can Structural Reforms Help to Reduce Them?," OECD Journal: Economic Studies, OECD Publishing, vol. 2011(1), pages 1-44.
    2. Clovis Kerdrain & Isabell Koske & Isabelle Wanner, 2010. "The Impact of Structural Policies on Saving, Investment and Current Accounts," OECD Economics Department Working Papers 815, OECD Publishing.
    3. Bénassy-Quéré, Agnès & Carton, Benjamin & Gauvin, Ludovic, 2013. "China and global rebalancing: A two-country approach," China Economic Review, Elsevier, vol. 26(C), pages 118-139.
    4. Bénassy-Quéré, Agnès & Carton, Benjamin & Gauvin, Ludovic, 2013. "China and global rebalancing: A two-country approach," China Economic Review, Elsevier, vol. 26(C), pages 118-139.
    5. Eswar S. Prasad, 2011. "Rebalancing Growth in Asia," International Finance, Wiley Blackwell, vol. 14(1), pages 27-66, April.
    6. Chang, Xiao & An, Tongliang & Tam, Pui Sun & Gu, Xinhua, 2020. "National savings rate and sectoral income distribution: An empirical look at China," China Economic Review, Elsevier, vol. 61(C).
    7. Riccardo Cristadoro & Daniela Marconi, 2012. "Household savings in China," Journal of Chinese Economic and Business Studies, Taylor & Francis Journals, vol. 10(3), pages 275-299, November.
    8. Bussière, Matthieu & Kalantzis, Yannick & Lafarguette, Romain & Sicular, Terry, 2013. "Understanding household savings in China: the role of the housing market and borrowing constraints," MPRA Paper 44611, University Library of Munich, Germany.
    9. Chamon, Marcos & Liu, Kai & Prasad, Eswar, 2013. "Income uncertainty and household savings in China," Journal of Development Economics, Elsevier, vol. 105(C), pages 164-177.
    10. Terada-Hagiwara, Akiko, 2009. "Explaining Filipino Households’ Declining Saving Rate," ADB Economics Working Paper Series 178, Asian Development Bank.
    11. repec:hal:pseose:hal-00825239 is not listed on IDEAS
    12. van Treeck, Till. & Sturn, Simon., 2012. "Income inequality as a cause of the Great Recession? : A survey of current debates," ILO Working Papers 994709343402676, International Labour Organization.
    13. Cheung, Diana & Padieu, Ysaline, 2015. "Heterogeneity of the Effects of Health Insurance on Household Savings: Evidence from Rural China," World Development, Elsevier, vol. 66(C), pages 84-103.
    14. Guonan Ma & Wang Yi, 2010. "China’s High Saving Rate: Myth and Reality," International Economics, CEPII research center, issue 122, pages 5-39.
    15. Ismail, Aisha & Rashid, Kashif, 2013. "Determinants of household saving: Cointegrated evidence from Pakistan (1975–2011)," Economic Modelling, Elsevier, vol. 32(C), pages 524-531.
    16. Curtis, Chadwick C. & Lugauer, Steven & Mark, Nelson C., 2017. "Demographics and aggregate household saving in Japan, China, and India," Journal of Macroeconomics, Elsevier, vol. 51(C), pages 175-191.
    17. Bonatti, Luigi & Fracasso, Andrea, 2013. "Regime switches in the Sino-American co-dependency: Growth and structural change in China," Structural Change and Economic Dynamics, Elsevier, vol. 25(C), pages 1-32.
    18. Liu, Hong & Ma, Jinqiu & Zhao, Liqiu, 2023. "Public long-term care insurance and consumption of elderly households: Evidence from China," Journal of Health Economics, Elsevier, vol. 90(C).
    19. Nelson Mark & Steven Lugauer & Clayton Sadler, 2012. "The Role of Household Saving in the Economic Rise of China," Working Papers 004, University of Notre Dame, Department of Economics, revised Jun 2012.
    20. Rickne, Johanna, 2013. "Labor market conditions and social insurance in China," China Economic Review, Elsevier, vol. 27(C), pages 52-68.
    21. Bai, Chong-En & Wu, Binzhen, 2014. "Health insurance and consumption: Evidence from China’s New Cooperative Medical Scheme," Journal of Comparative Economics, Elsevier, vol. 42(2), pages 450-469.

    More about this item

    Keywords

    rebalancing growth; Macroeconomic Policy; global financial crisis; aggregate demand; Asian economies; investment spending; macroprudential framework; capital flows;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E64 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Incomes Policy; Price Policy
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eab:develo:23271. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Shiro Armstrong (email available below). General contact details of provider: https://edirc.repec.org/data/eaberau.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.