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Macroeconomic Policy Making in Fragile States
Raphael Espinoza is a former MSc in Economics for Development and DPhil student at Oxford, now senior economist at the IMF.
He will be presenting an overview of and key policy messages from the book that he has recently co-edited with Peter Montiel and Ralph Chami, Macroeconomic Policy in Fragile States. Setting macroeconomic policy is especially difficult in fragile states. Political legitimacy concerns are heightened, raising issues such as who the policymakers are, what incentives they face, and how the process of policymaking is likely to work under limited legitimacy and high uncertainty both about the macroeconomic environment as well as policy effectiveness. In addition, fragility expands the range of policy objectives in ways that may constrain the attainment of standard macroeconomic objectives. Specifically, in the context of fragility policymakers also need to focus on measures to mitigate fragility itself – i.e., they need to address issues such as regional and ethnic economic disparities, youth unemployment, and food price inflation.
Socio-political developments around the world have thus pushed policymakers to broaden their toolkit to improve the effectiveness of macroeconomic management in the face of these constraints. The chapters in this book address these issues, both by giving an analytical context from which policymakers can build to answer the questions they face in fragile situations as well as by providing lessons drawn from empirical analyses and case studies.
The presentation will discuss the concept of state fragility and explain how the macroeconomies of fragile states differ from those of other developing economies. The presentation will also proposes a framework to illustrate how the poverty trap and the fragility trap interact, leveraging on the existing literature as well as on the new contributions presented in the book. Finally, the presentation will extract policy lessons from the 19 chapters in the book, in three increasingly specific steps: 1) General principles for policy engagement, 2) Policies to escape fragility, and 3) Macroeconomic policies to manage fragile economies, in particular in the areas of fiscal policy, monetary policy and financial development.