Domestic Adjustment Policies and External Economic Shocks

Abstract

The paper outlines a conceptual framework for looking at the problem of economic adjustment in the wake of external economic shocks. It then analyzes the experience of ten major oil importing countries in responding to the oil and interest rate shocks during 1973-84. It also contrasts the experience of two countries which faced positive external shocks. In drawing the lessons of experience, the paper stresses the importance of domestic policies especially flexible macroeconomic management including an active exchange rate policy. It also points to the need for symmetry in dealing with positive and negative economic shocks. [130]

^* This paper has been written in the personal capacity of the author and does not represent the views of the World Bank.

^* This paper has been written in the personal capacity of the author and does not represent the views of the World Bank.

Notes

^* This paper has been written in the personal capacity of the author and does not represent the views of the World Bank.