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
JEL(s): O23, O40
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.