Recent crises in East Asia and Latin America have raised questions about the conduct of macroeconomic policy in developing countries. But what is the scope for macroeconomic management in developing countries? Should international financial institutions that assist developing countries rely heavily on it? This paper investigates these issues. It concludes that, while the scope for tight macroeconomic control may be limited in some countries, appropriate structural reform could make the traditional macroeconomic policy tools more effective in the long run. This finding has important implications for reforming the International Monetary Fund. Although conducting macroeconomic policy is not a piece of cake, it should not prove to be an impossible mission if it is accompanied, or even preceded, by measures to strengthen the supply side.
Conducting macroeconomic policy in developing countries: Piece of cake or mission impossible?
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