Macroeconomics of Low‐Income Countries: New Perspectives

• Author: Camelia Minoiu,Galina Hale
• DOI: http://doi.org/10.1111/1468-0106.12093
• Date: 01 February 2015
• Published date: 01 February 2015

MACROECONOMICS OF LOW-INCOME COUNTRIES:

NEW PERSPECTIVES

The papers included in this special issue were presented at a conference on the

macroeconomics of low-income countries held on 30–31 January 2014 in Wash-

ington, DC. The conference was co-organized by the Research Department and

the Strategy, Policy, and Review Department of the International Monetary

Fund (IMF). The event was part of an IMF research program on low-income

country macroeconomics and policy issues that is sponsored by the UK Depart-

ment for International Development. The goal of the conference was to bring

together leading economists to discuss macroeconomic policy issues facing low-

income countries; and to advance our knowledge of how policies interact with

one another to affect economic growth, macroeconomic stability and resilience

to shocks.

The conference also aimed at adapting methods and tools from the literature

on advanced economies to the low-income country context. The papers gathered

in this special issue offer fresh ‘outside-the-box’ perspectives on traditional

development macro issues and serve as an example of the kind of thinking

required for the study of low-income countries. In particular, the papers make

progress towards dispelling two myths about research on developing economies.

The first is that there are no reliable data, and, hence, empirical work and model

calibration are severely impaired. The second is that standard macroeconomic

models do not apply to a developing country context and, hence, theoretical

approaches can only provide limited insight.

The papers gathered here demonstrate the authors’ ingenuity in adapting to a

low-income country setting analytical approaches that are traditionally used to

study advanced economies. Naturally, these approaches need to incorporate the

specific features of less developed economies. Yet, when calibrated carefully,

standard models provide useful insights that are not only of academic interest,

but can also inform policy advice. When asked what she learned from this new

research process, Susan Yang, who studies fiscal approaches to investing

resource revenues in Angola using a dynamic stochastic general equilibrium

(DSGE) model, said that ‘the model initially developed for advanced economies

cannot be applied directly to low-income or developing countries in general. The

models employed for low-income countries have to account for constraints such

as limited access to international financial markets, large infrastructure gaps,

and low institutional quality, to avoid painting an overly optimistic picture for

the growth effects of investing resource revenues’.

The first three papers focus on financial sector topics, in particular the dynam-

ics of international capital flows to low-income countries, banking market struc-

ture and financial stability and bank behaviour during a financial panic. They

are followed by three papers on macro-modelling, which respectively look at

macroeconomic dynamics, shock transmission and fiscal policies in low-income

countries.

bs_bs_banner

Pacific Economic Review, 20: 1 (2015) pp. 45–48

doi: 10.1111/1468-0106.12093

© 2015 Wiley Publishing Asia Pty Ltd

The International Monetary Fund retains copyright and all other rights in the manuscript of this

article as submitted for publication.