Benno Ndulu and Joseph Leina Masawe
Central banks in Africa have implemented far-reaching reforms to ensure greater effectiveness in monetary policy implementation, but they still face considerable challenges ranging from the challenge of linking inflation control and growth to the challenges of exogeneity of inflation drivers, shallowness of financial markets, and weak monetary policy transmission mechanism. While ensuring the preservation of the primary goal of price stability, central banks are now designing frameworks for supporting growth in a countercyclical framework and giving greater attention to financial stability and central bank independence. This chapter brings the challenges into a perspective and tries to explore the way forward for African central banks.
Vasco Gabriel, Paul Levine, Joseph Pearlman, and Bo Yang
This article studies business cycle dynamics in the Indian economy using a new Keynesian dynamic stochastic general equilibrium (DSGE) framework. This is one of the first attempts to estimate a DSGE model for the Indian economy. The policy relevance of conducting such an exercise is without question: High growth in India since 1991 has been accompanied by significant trade and financial liberalization. Policy makers face significant trade-offs in ensuring price and financial stability in devising monetary conditions in response to external shocks. Therefore, understanding the mechanisms that contribute to the amplification and propagation of shocks requires careful investigation. The article develops a closed-economy DSGE model of the Indian economy and estimates it by Bayesian maximum likelihood methods using Dynare software. The article also adds newer features to the model sequentially, giving a clear indication of how such models may be built and ultimately used by researchers.
M. H. Suryanarayana
Much of the theorizing and policy making for rural poverty alleviation in India lacks empirical appreciation of issues and challenges. Therefore, it is important to examine how valid the different interpretations of the Indian evidence justifying alternative policy imperatives are. This article illustrates one such issue with reference to the strategy for agricultural growth since the mid-1960s until now, and its impact evaluation in terms of inequality and poverty and the current enigma on hunger and deprivation. It deals with policy imperatives of development for eradicating poverty and deprivation. The article then examines the Indian evidence on its agricultural growth strategy and a policy outcome evaluation with reference to rural poverty in India during different phases of the Indian agricultural development strategy. It mainly examines the missing links in research methodology of these studies and their implications. Some evidence in terms of final estimates of consumption are provided.
This article focuses on how the institutional structure of the financial sector and the role of financial intermediation in the Indian economy affect the transmission of monetary policy to the real economy. The article reviews a large amount of empirical literature on monetary transmission within the Indian context (with bank lending and the credit channel being more prevalent). One aspect that emerges from this discussion is that the effect of monetary disturbances on market interest rates, output, and prices, depends on the response of such disturbances to the yield curve. However, recent research on emerging markets shows that long-term rates are not responsive to changes in short-term rates. Thus, monetary policy has smaller effects on output and prices in emerging markets. In the Indian context, the shortcomings of the transmission mechanism further arise because of an underdeveloped financial system and the problem of credit rationing by formal sector banks.
Kalpana Kochhar, Sonali Jain-Chandra, and Monique Newiak
This chapter examines global megatrends such as demographic shifts, technological progress, globalization, and climate change and emphasizes the important role of gender equality in mitigating their adverse consequences. The chapter first discusses demographic change, globalization, technological progress, and climate change before explaining how the main challenges posed by these megatrends could be offset by increasing gender equality, providing more equal access to economic opportunities for women, and boosting female economic participation. In particular, it considers ways of mitigating the impact of population ageing, harnessing urbanization for growth and gender equity, catalysing change to reduce income inequality, accelerating economic diversification, and mitigating vulnerability to climate change. The chapter concludes with an evaluation of policy options for mitigating the risks posed by megatrends through gender equality, such as unleashing fiscal policy, easing the burden of non-market work, and removing legal discrimination against women.
Long-Run Growth in Open Economies: Export-led Cumulative Causation or a Balance-of-payments Constraint?
Post-Keynesian economists concerned with long-run growth in open economies have developed two related but fundamentally different theoretical approaches: the export-led cumulative causation model and the balance-of-payments-constrained growth model. The first approach stresses the possibility that some countries can achieve ever-widening “virtuous circles” of faster technological progress, improving competitiveness, rising exports, and rapid output growth (although, in this view, other countries may be doomed to suffer “vicious circles” of slower technological progress, worsening competitiveness, stagnant exports, and sluggish output growth). On the other hand, models of balance-of-payments-constrained growth emphasize the limitations placed upon a nation’s growth by the need to finance necessary imports through either export growth or financial inflows. This chapter looks at the key theoretical differences between the two approaches and evaluates how and to what extent they can be reconciled by representing both in a common analytical framework.
Andrew Berg, Stephen O'Connell, Catherine Pattillo, Rafael Portillo, and Filiz Unsal
This chapter examines monetary policy in sub-Saharan Africa (SSA). After a brief historical overview of changes in SSA’s monetary policy landscape from the 1980s, the article considers a range of issues related to monetary policy among central banks operating independent currencies in the region. It then looks at the peculiar challenges of characterizing the monetary transmission mechanism in a rapidly changing environment, along with the role of monetary aggregates, the exchange rate, and fiscal/monetary interactions in the monetary policy frameworks in SSA. It also analyses SSA’s monetary policy response to food price shocks before concluding with an assessment of modern analytic frameworks that take into account many of the monetary policy issues facing SSA and can be used as a platform for forecasting and policy analysis.
David E. Bloom
This article looks at the consequences of India's demographic transition—higher population growth and transforming age structure—and its impact on growth. In a comparison group comprising select East Asian economies, approximately 2% of their growth in income per capita (over 1975–2005)—roughly one-third of the supposed miracle—can be attributed to demographic change. Counterfactual experiments based on low and medium fertility rates for India imply a sizeable demographic dividend—roughly to the order of an additional percentage point or more annually to per capita income growth (projecting forward to 2050). The key policy question is whether health and education allocations (at all levels) by the government will grow in tandem to transform India's youth advantage into productive employment.
Amitava Krishna Dutt
Although post-Keynesian economics, like John Maynard Keynes’s own analysis in The General Theory of Employment, Interest and Money, mostly deals with advanced capitalist economies, in the last several decades it has also been used for analyzing the problem of less-developed countries (LDCs). This chapter provides a brief overview of post-Keynesian contributions to the study of the economic problems of LDCs, also known as development economics. Post-Keynesian economics is the approach to economics that stresses the role of aggregate demand in the analysis of the determination of output and employment and the rate of growth of the economy. This approach has roots in the writings of Keynes, Michał Kalecki, and other economists such as Joan Robinson and Hyman Minsky. This chapter discusses a number of theoretical issues in the post-Keynesian analysis of development, focusing on models that stress the role of aggregate demand. It also considers a number of implications of post-Keynesian analysis for broad strategies of development and for economic policy.
This article first takes stock of what we know about the patterns observed in Indian development and speculates on the likely scenarios over the next few decades. The main question that the article concerns—and probably the biggest economic policy challenge today—is why has poverty in India declined so slowly? The article suggests that a proximate cause is the size and productivity levels of the informal sector—a bulk of India's labor force is engaged in low-productivity cottage-type activities with little physical or human capital. This hinders productivity. What then is responsible for the existence and continuation of constraints in the informal sector? If the poor incidence of entrepreneurship in the informal sector is because of poor infrastructure and weak financial inclusion, why have governance structures failed to alleviate these constraints? In addition, the formal sector has not expanded at the expense of the informal sector to absorb a greater part of the labor force. The article discusses a host of factors that could explain obstacles to productivity improvements in the informal sector, and hence the low growth–poverty elasticity: caste, collective action, the political economy of Indian democracy, the role of credit markets, and rural urban migration, among others.