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Macroeconomic Adjustment in Developing Countries

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  • International Monetary Fund

Abstract

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.

Suggested Citation

  • International Monetary Fund, 1988. "Macroeconomic Adjustment in Developing Countries," IMF Working Papers 1988/013, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:1988/013
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    Citations

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    Cited by:

    1. Ricardo Hausmann, 1995. "Dealing with Negative Oil Shocks: The Venezuelan Experience in the Eighties," Research Department Publications 4010, Inter-American Development Bank, Research Department.
    2. M Bahmani-Oskooee & I Miteza, 2006. "Stock Market Growth: An analysis of cointegration and causality," Economic Issues Journal Articles, Economic Issues, vol. 11(1), pages 37-64, March.
    3. Devarajan, Shantayanan & de Melo, Jaime, 1990. "Membership in the CFA zone : Odyssean journey or Trojan horse?," Policy Research Working Paper Series 482, The World Bank.
    4. Naeem Ur Rehman Khattak & Muhammad Tariq, 2012. "Are Real Devaluations Contractionary? an Empirical Analysis for Pakistan," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 2(1), pages 119-134, March.

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