DP5642 Macroeconomic Policy and the Distribution of Growth Rates
|Author(s):||Vatcharin Sirimaneetham, Jonathan Temple|
|Publication Date:||April 2006|
|Keyword(s):||Bayesian Model Averaging, counterfactuals, economic growth, macroeconomic policy, Washington Consensus|
|Programme Areas:||International Macroeconomics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=5642|
We examine the view that high-quality macroeconomic policy is a necessary, but not sufficient, condition for economic growth. We first construct a new index of the quality of macroeconomic policy. We then directly compare growth rate distributions across countries with good and bad policies; use Bayesian methods to examine the partial correlation between policy and growth; and outline how growth and steady-state income levels might have differed, had all countries achieved good policy outcomes. One finding is that bad macroeconomic policies can be offset by other factors, but the fastest-growing countries in our sample all shared high-quality macroeconomic management.