Macroeconomic Policy and the Distribution of Growth Rates
52 Pages Posted: 19 Jul 2006
Date Written: April 2006
Abstract
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.
Keywords: Macroeconomic policy, economic growth, Washington Consensus, Bayesian Model Averaging, counterfactuals
JEL Classification: O23, O40
Suggested Citation: Suggested Citation
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