© 2002 International Monetary Fund

Production: IMF Graphics Section

Cover design: Lai Oy Louie

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Cataloging-in-Publication Data

Macroeconomic management: programs and policies / edited by Mohsin S. Khan, Saleh M. Nsouli, and Chorng-Huey Wong — Washington, D.C.: IMF Institute, c2002

p. cm.

Includes bibliographical references.

ISBN 1-58906-094-6

1. Monetary policy. 2. Fiscal policy. 3. Foreign exchange rates. 4. Growth. 5. Balance of Payments. 6. International Monetary Fund. I. Khan, Mohsin S. II. Nsouli, Saleh M. III. Wong, Chorng-Huey. IV. IMF Institute.

HG230.3.M35 2002

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Contents

• Foreword

• Acknowledgments

• 1 Macroeconomic Management: An Overview

  • Mohsin S. Khan, Saleh M. Nsouli, and Chorng-Huey Wong

• 2 Adjustment and Internal-External Balance

  • Chorng-Huey Wong

• 3 Do IMF-Supported Programs Work? A Survey of the Cross-Country Empirical Evidence

  • Nadeem Ul Haque and Mohsin S. Khan

• 4 Sources of Growth

  • Xavier X. Sala-i-Martin

• 5 Current Account Sustainability

  • Luis Carranza

• 6 The Framework of Monetary Policy

  • Richard C. Barth

• 7 Inflation Targeting

  • Jodi Scarlata

• 8 Fiscal Policy and Macroeconomic Management

  • Samir El-Khouri

• 9 Assessment of the Fiscal Balance

  • Enzo Croce

• 10 Determination of Nominal Exchange Rates: A Survey of the Literature

  • Graciana del Castillo

• 11 The Long-Run Equilibrium Real Exchange Rate: Theory and Measurement

  • Peter J. Montiel

• Contributors

Foreword

Successful economic policymaking depends at least as much on the ability of countries to shape good policies as it does on the political will to implement them. This is particularly true today as the challenges of globalization raise new questions for economic policymakers everywhere. It is not surprising, therefore, that policy-based economic training by IMF member countries continues to increase steadily.

Since its inception almost 40 years ago, the IMF Institute has been spearheading the IMF’s economics training program and in recent years has expanded both the reach and depth of its program. Over the past four years, it has substantially increased overseas training through the formation of collaborative regional training centers. There are now six such centers operating worldwide. The IMF Institute has also revised and updated its curriculum to ensure that its program reflects new issues in economic management and exposes participants to wider perspectives. This book is one outcome of this effort.

Each chapter addresses a key topic in economic management, such as sources of economic growth; appropriate monetary, fiscal, and exchange rate policies for redressing domestic and external financial imbalances; and the effects of IMF-supported programs. Each chapter reflects some of the most recent advancements in the economics literature, including inflation targeting, the application of time-series methods to estimating the equilibrium real exchange rate, and indicators for detecting risk factors that contribute to current account instability and financial crisis. But rather than offer definitive policy choices, the chapters present a variety of options, explaining the theoretical frameworks and highlighting the empirical considerations that go into the design of a successful macroeconomic adjustment program.

Encompassing as it does many important issues with which governments and central banks around the world grapple every day, the book should be a valuable resource for any student or practitioner of economic policymaking.

Anne O. Krueger

First Deputy Managing Director

International Monetary Fund

Acknowledgments

This book is the product of the efforts and expertise of many current and former colleagues in the IMF Institute. We would like to thank each of them for their contributions to this volume. We are particularly indebted to Farah Ebrahimi of the IMF Institute for editing the volume and taking it through the various stages. We also thank James McEuen of the External Relations Department for copyediting the final manuscript and seeing the book through production.

Mohsin S. Khan

Saleh M. Nsouli

Chorng-Huey Wong