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This chapter discusses relationships between the macro economy and economic policy, and the environmental and resource situation in developing countries. It focuses on the distortive effects of energy and resource subsidies, poorly managed monetary policy leading to exchange rate instability and high interest rates, and financial crises which often lead to too shortsighted policies and behavior regarding the management of environment and resources.

This chapter explores the EU’s policies on marginalisation. It begins by looking into the interplay between macroeconomic developments and various forms of marginalisation. The evolution of EU policy in the social arena, and how it fits in with other policies that address marginalisation are examined. The open method of coordination is described, and prospects for a coherent EU approach to marginalisation are evaluated.

This chapter describes the consolidation of new macroeconomic regimes in Denmark and the Netherlands in the early 1980s and the end of employment-oriented macroeconomic policies in Austria and Sweden in the late 1980s and early 1990s. The main argument of the chapter is that the policy changes in Austria and Sweden were associated with wider changes in the Austrian and Swedish political models in the late 1980s and early 1990s – a period when Austria and Sweden became, in a certain sense, ordinary European states. The chapter also considers the role of economic ideas and Europeanization.

This chapter recommends a broad concept of macroeconomic stability, whereby ‘sound macroeconomic frameworks’ include not only price stability and sound fiscal policies, but also a well-functioning real economy, sustainable debt ratios, and healthy public and private sector balance sheets. These multiple dimensions imply the use of multiple policy instruments. The chapter elaborates a framework for developing countries that involves active use of countercyclical macroeconomic policies (exchange rate, monetary, and fiscal), together with capital management techniques (capital account regulations and prudential rules incorporating macroeconomic dimensions). It also explores the role of international financial institutions in facilitating developing countries' use of countercyclical macroeconomic policies.

This chapter describes how governments in Austria, Denmark, the Netherlands and Sweden responded to the threat of unemployment from the first oil crisis in 1973 until they gave priority to objectives other than full employment in the 1970s (Denmark and the Netherlands), 1980s (Austria), or early 1990s (Sweden). Domestic political circumstances mattered greatly to the policy choices governments made. The Danish and the Dutch political systems were already in a state of transition by the early 1970s: new parties had emerged, the relationship between unions and employer organizations had become strained, and the ideological consensus of the 1950s and 1960s had come to an end. The Austrian and Swedish political models, on the other hand, were still intact. The chapter also considers the role of economic circumstances, central banks, wage bargaining institutions.

In the UK, as in Australia and New Zealand, the ‘liberal’ post‐war welfare state was conceived as a minimal safety net under conditions in which full employment was to be ensured by (‘Keynesian’) macroeconomic policies. In the 1950s and 1960s, economic growth was constrained by stop–go policies trying to defend the pound as an international reserve currency in the face of inflationary wage pressures. After the dramatic failure of Labour economic policies in the crises of the 1970s, the (‘monetarist’) Conservative government of the 1980s succeeded in breaking the power of the unions and in stabilizing the currency at the expense of full employment, but did not fundamentally change the structure of the welfare state. After 1997, however, the ‘New Labour’ government set out to adjust the liberal welfare state to conditions in which government economic policies could no longer ensure full employment.

This chapter describes how, since the 1980s, policymakers have managed to reduce and control inflation without unacceptably adverse welfare impacts by changing the monetary policy regime in a way that subjects policy to an external rule. The record in this period suggests that policymakers and economists have arrived at a better understanding of monetary policy and on how to keep the price level low and stable, while at the same time keeping real growth high and stable. This understanding incorporates three key beliefs. First, there is a natural rate of unemployment at which inflation is stable. Second, there is a transmission mechanism through which monetary policy actions affect the economy. Third monetary policymakers face trade-offs.

This chapter examines the pros and cons of macroeconomic policy coordination in Mercosur. It reviews the macroeconomic functioning of the Argentine economy under convertibility, and the exchange regimes and trade structure of Mercosur countries. It argues that Mercosur countries would greatly benefit from gradually advancing into macro coordination. The first step is to reduce the remaining volatility in the evolution of nominal and relative prices within the bloc.

Preventive capital account regulations have three potential roles in developing countries. First, as a macroeconomic policy tool they provide some room of manoeuvre for counter-cyclical macroeconomic policies, to help to cool aggregate demand and to avoid the accumulation of unsustainable debt burdens. Second, as a ‘liability policy’ they help to avoid risky corporate balance-sheet structures (excessive reliance on short-term external debts, maturity, and currency mismatches) and thus the worst effects of the volatility of capital inflows. Finally, capital controls help to avoid asset bubbles and thus prevent potential crashes. The experiences of Chilean, Colombian, and Malaysian regulations on capital inflows indicate that they fulfilled those key aims. However, the macroeconomic effects depended on the strength of the regulations and tended to be temporary. The basic advantage of the price-based instrument used by Chile and Colombia was its non-discretionary character, whereas quantity-based controls in Malaysia proved to be stronger in terms of short-term macroeconomic effects.

This chapter focuses on how the IMF interacts with macroeconomic policy formulation in low-income countries (LICs). It addresses four related concerns. Can the IMF remain fully engaged with LICs without having a loan program (such as the PRGF) in place? How can it sign up to a macroeconomic approach characterized by greater fiscal flexibility? Is its approach (jointly with the World Bank) to debt sustainability adequate, especially in the context of aid concessionality? Is the type of technical assistance it offers suitable to the needs of LICs? The general conclusion is that the Fund has made considerable progress in addressing these issues, but that much more remains to be done: specifically, it should strengthen the underpinnings of its technical assistance and advice, develop a more focused low-income analytic perspective, build its own capacity to assist countries to explore their macroeconomic options, and more systematically evaluate its technical advice in the light of the outcomes this has helped to induce.

This chapter explores how economic nationalism in Japan has changed in the last 30 years and where it might be heading in the future. It looks at state intervention, which Japan has perfected by deftly combining state action with large private corporations. However, prolonged stagnation since the late 1980s condemned this approach and replaced it with neoliberal policies. This chapter counterintuitively argues that despite scaling back the role of the state in many economic regulatory and welfare-related areas actually increased. Relying on financial and macroeconomic policies since the early 1980s, the chapter shows that globalization and financial liberalization were accompanied by the creation of several powerful state-backed institutions entrusted with substantial financial resources and a wide range of regulatory authority that go well beyond what is deemed “prudential regulatory” safeguards. However, such policies consistent with economic nationalism failed to deliver on its promises of growth and social stability.

This chapter analyzes the impact of low inflation. It argues that despite repeated efforts by governing authorities to initiate anti-inflationary policies, long-lasting stabilization can prove elusive. Reducing inflation is one thing, but keeping it down is the real challenge. The chapter highlights the experiences of some Latin American countries in the 1970s and 1980s, Russia in the 1990s, and Argentina in the 2000s. One typical mistake was to choose the exchange rate as the nominal anchor, which allows the inflation rate to be reduced quickly, but its effect is temporary, as governments often use lower inflation as a reason to delay the necessary fiscal tightening, eventually leading to the collapse of the exchange rate peg and inflation striking back with a vengeance.

Macroeconomic policy in wartime is concerned with reducing human suffering, particularly in poor countries where a large proportion of the population is near or below the poverty line. This chapter examines a ‘conflict economy’, which distinguishes ‘war shocks’ from other shocks familiar from modern development macroeconomics, and outlines the main fiscal and external-sector disequilibria that tend to emerge in wartime. It turns to the way in which civil society, firms, and households respond to the shocks and uncertainties of war, and what the consequences are for the macroeconomic behaviour. In addition, the chapter discusses macroeconomic policy in low-income countries affected by armed conflict. It sets out the basis for an alternative approach to macroeconomic stabilisation, which takes into account explicitly the disequilibrium nature of the low-income economy in conflict.

This chapter discusses Indonesia's experience with trade and external liberalization, emphasizing the policy dynamics and the socio-economic effects of liberalization. Section 2 analyzes the country's overall socio-economic performance before and after liberalization. The interactions between monetary and fiscal policies and the general trend of social development are discussed. Section 3 explains the government's struggle to manage macroeconomic policy during liberalization. Section 4 provides more detailed discussions of the impact of liberalization on employment, income distribution, and poverty. The effect of the 1997 financial crisis on these variables is discussed in Section 5.

This is the fourth of five country case studies on income inequality, and looks at the case of South Africa. After an introduction, the second section of the chapter reviews the evolution of inequality in South Africa, and the third draws together the findings of other authors to highlight the primary sources of changes in the nature of income inequality (wage differentials and unequal access to employment). The fourth section assesses the evolution of economic policy and performance, drawing a distinction between the apartheid years and the post‐1994 period, and also considers the posttransition policy framework in more detail. The fifth section briefly discusses policies targeted at the structural causes of poverty and inequality since 1994 (policies on education and social expenditure, and on land). The sixth section focuses on the likely impact of the macroeconomic policy framework since 1994 on income distribution, arguing that changes in labour markets resulting from the breakdown of apartheid in the workplace dominated the observed shifts in the distribution of income during the 1970s and 1980s, although there is evidence that the shift towards neoliberal orthodoxy is increasingly affecting the income distribution; topics addressed include the effects of stabilization (inflation and interest rates), fiscal policy, trade and financial liberalization, and labour institutions.

This chapter outlines the counter-revolution in macroeconomic policy which brought forth a period of tight monetary policy and fiscal austerity imposed in the name of defeating inflation. This was followed by the unwinding of much of the detailed government intervention into particular sectors and markets which had characterized the previous decades. Privatization and the deregulation of the industries concerned, the substitution of private sector sources of supply for public sector in-house service provision, and the deregulation of labour markets are all aspects of this process.

This chapter focuses on the macro level economic environment within which the enterprise operates. It is divided into six sections. Following a brief introduction, the second section outlines the socialist economic situation at the end of the 1980s, a period of decline following the ‘era of stagnation’ under Brezhnev. The third section summarizes trends in the macroeconomy after 1989, covering GDP, inflation, state budgets, international trade flows, and balance of payments. The fourth section discusses labour market trends — employment, unemployment, earnings, and labour productivity. The fifth section discusses the development of macroeconomic policies in the region after 1989. The concluding sixth section provides a brief summary.