An Alternative Policy Approach to Growth and Stabilisation in Small Open Economies

Forthcoming Handbook of Caribbean Economies (Routledge, 2020)

10 Pages Posted: 29 Apr 2020

See all articles by DeLisle Worrell

DeLisle Worrell

DeLisle Worrell and Associates, Inc.

Date Written: January 1, 2020

Abstract

This chapter recommends an alternative to the standard approach to economic stabilisation and growth policy for small open economies. The standard view, reflected in the analyses of the IMF, other international institutions, most think tanks and the media, is that a combination of credible inflation targetting regimes, flexible exchange rates, and fiscal sustainability are the core elements of a policy regime that is appropriate for all countries, regardless of size. Instead, for small open economies we propose the use of fiscal management to maintain and improve the international competitiveness of the economy, to maximise the inflow of private foreign capital motivated by attractive rates of return, and to stabilise inflation expectations by anchoring the exchange rate to an international reserve currency. This chapter explains the alternative policy framework, and compares it with the standard approach.

Keywords: Economic policy, Stabilisation, Monetary policy, Fiscal policy, Small economy, Open economy

JEL Classification: E52, E58, E62, E63, E65

Suggested Citation

Worrell, DeLisle, An Alternative Policy Approach to Growth and Stabilisation in Small Open Economies (January 1, 2020). Forthcoming Handbook of Caribbean Economies (Routledge, 2020), Available at SSRN: https://ssrn.com/abstract=3568563 or http://dx.doi.org/10.2139/ssrn.3568563

DeLisle Worrell (Contact Author)

DeLisle Worrell and Associates, Inc. ( email )

Glenisla
Fisherpond
St. Jospeh BB21000
Barbados

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