Thursday, February 13, 2014
The micro consequences of macro shocks
Today we will discuss in my Macroeconomic class for MA students, the impact of shocks in an open economy and the options in terms of fiscal and monetary policy. One thing that is particularly important but that we don´t always highlight enough is the micro implications of shocks like crisis in the balance of payments or large recessions. Who suffers from them? How do people respond? A series of articles from the Washington Post in 1998 constitute a great illustration of some of these impacts. See, in particular, this one on the middle class. Of course, the crisis ended up being less difficult than initially expected... but this is only because the East Asian economies have always proved very resilient.
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Precisely because of this is why a more comprehensive macroeconomic policy design should be proposed. Even assuming that short-run and long-run economic stability is achievable, this is pointless if sound socio-economic growth is not managed. I find it baffling that still in some developing economies the social reach of macroeconomic policies is ill-monitored, at an important opportunity cost for coming generations. Might this be related to the underlying assumptions (i.e., economic thought school) on which these policies are formulated? Or is it rather to do with the lack of an interdisciplinary approach to economic development? A mix of the two?
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