The Role of Macroeconomic Factors in Growth

36 Pages Posted: 21 May 2000 Last revised: 24 Dec 2022

See all articles by Stanley Fischer

Stanley Fischer

Bank of Israel; National Bureau of Economic Research (NBER); International Monetary Fund (IMF)

Date Written: December 1993

Abstract

Using a regression analog of growth accounting, I present cross- sectional and panel regressions showing that growth is negatively associated with inflation, large budget deficits, and distorted foreign exchange markets. Supplementary evidence suggests that the causation runs from macroeconomic policy to growth. The framework makes it possible to identify the channels of these effects: inflation reduces growth by reducing investment and productivity growth; budget deficits also reduce both capital accumulation and productivity growth. Examination of exceptional cases shows that while low inflation and small deficits are not necessary for high growth even over long periods, high inflation is not consistent with sustained growth.

Suggested Citation

Fischer, Stanley, The Role of Macroeconomic Factors in Growth (December 1993). NBER Working Paper No. w4565, Available at SSRN: https://ssrn.com/abstract=227969

Stanley Fischer (Contact Author)

Bank of Israel ( email )

P.O. Box 780
Jerusalem, 91907
Israel

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

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