Wednesday, August 13, 2008
Which Nominal Anchor for Commodity Exporting Countries?
In CEPR Policy Insight No. 25, Jeffrey Frankel (Harvard Uni.) proposes a solution: pegging the domestic currency only to the export price. For e.g., for a gold exporting country, the proposal would be that, when the dollar price of gold increases in the world market, the domestic currency should appreciate against the dollar (that is, monetary policy should be tighter) and vice versa. Commodities may be viewed as assets (like physical capital), thus in a sense, Frankel favors monetary policy that responds to asset prices, an issue that is still under debate in the academic and policy arenas. Moreover, the proposal is in sharp contrast to the strategy of inflation targeting (IT) adopted by many advanced and emerging-market economies. As a nominal anchor, IT involves setting an inflation target based on the consumer price index (one component of which is import prices). For a defense of the IT strategy, see Lars Svensson's (Princeton Uni.) comment on Frankel's proposal.
Sunday, June 15, 2008
Is There a Recipe for Growth and Development?
According to the report by the Commission on Growth and Development (aka the Spence report), there is no single recipe for all countries. This conclusion is in mark contrast to what Dani Rodrick calls the "old" Washington Consensus---liberalisation, deregulation, privatization, and free markets.
But what can developing countries make of the Spence report? Perhaps not much. The report does not provide any novel solutions apart from iterating that each country should find out its mix of ingredients for development. However, the Spence report will surely tilt the balance in the intellectual battle within the development profession, as well as lower the leverage of World Bank/IMF on future development strategies and policies of developing countries.