Pace and Sequencing of Economic Policies
Electronic Access:
Free Download. Use the free Adobe Acrobat Reader to view this PDF file
Summary:
This paper examines the design of economic policies using factor analysis, which has several advantages; in particular, it limits the problems that typically arise from the high correlation of economic policy indicators, it helps in identifying clusters of economic policy, and it facilitates the derivation of policy design indicators that represent the pace and sequence of economic policies. Econometric results show that the introduction of sound economic policies has both level effects and growth effects, suggesting it is necessary to exercise caution when assessing a country's growth prospects immediately following the introduction of new policies. In addition, the results suggest that growth strengthens when a country implements policies that outpace either a notional measure of "world average policies" or a country's own policy trend, and highlight the critical role played by macroeconomic vis-à-vis microeconomic policies. The latter also reveals the existence of sequencing factors in policy implementation; for example, trade liberalization and financial liberalization positively affect growth, but more so if economic stability and fiscal sustainability have been secured.
Series:
Working Paper No. 2005/118
Subject:
Factor models Fiscal stabilization Fiscal stance Fiscal sustainability Structural reforms
English
Publication Date:
June 1, 2005
ISBN/ISSN:
9781451861372/1018-5941
Stock No:
WPIEA2005118
Pages:
20
Please address any questions about this title to publications@imf.org