Macroeconomic policy modelling for developing countries

The reality is that the appropriate macroeconomic policy framework for developing countries remains a hotly debated issue within the economics profession. At the same time, all indications are that most governments in developing countries (and certainly elsewhere) are seated uncomfortably, pondering the dilemma on economic policy options. The governments must be seen to perform. The spectre of persistent undesirable economic outcomes (e.g. chronic stagflation) is that the citizens may mobilize to demonstrate their worn out patience, while prospective donors and financiers may change their mind. It is therefore natural to ask whether macroeconomic theory, orthodox or otherwise, can be useful in underpinning the policy framework in these countries. But there is also the usual need to test economic theory against data (the real world) to inform policy; and a comprehensive data base is difficult to come by. Perhaps, with respect to these countries, macroeconomic theory should be reconsidered right from first principles. The idea is to work towards developing a small macroeconomic model which is however comprehensive enough to address the key policy instruments, issues, and targets; a model which is also congruent with the limited

available data base and the economic structure of the country in question. This book proposes and implements what I arguably call a 'small-model limited-data' approach. It is basically written for economists engaged in research, teaching and policy work.