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Macroeconomic Adjustment in Developing Countries
Author:
International Monetary Fund
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Series:
IMF Working Papers
Volume/Issue:
Volume 1988: Issue 013
Language:
English
Publication Date:
01 Jan 1988
DOI:
https://doi.org/10.5089/9781451924619.001
ISBN:
9781451924619
ISSN:
1018-5941
Pages:
30
Keywords:
WP; fiscal deficit; adjustment cost; current account deficit; anti-inflation program; adjustment problem; expenditure reduction; money supply; inflation financing; government expenditure; private sector; current account problem; Government debt management; Inflation; Current account; Current account deficits
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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The paper deals with the two parts of the short-run adjustment problem in developing countries: the improvement of the current account and the reduction of inflation, the main cause in both cases being usually a fiscal deficit. It is shown how the two parts are related. Distinctions are made between the primary adjustment cost, which is inevitable, and the secondary cost which results, for example, from failure to devalue or from real wage rigidity. A sectoral cost benefit analysis is suggested. Reducing inflation involves both an inflation tax replacement and a price adjustment problem, and “heterodox” policies designed to deal with the latter are analyzed.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund