Macroeconomics for Professionals: A Guide for Analysts and Those Who Need to Understand Them

312 Pages·2019·4.38 MB·English

by  Leslie Lipschitz

MACROECONOMICSFORPROFESSIONALS
Understanding macroeconomic developments and policies in the
twenty-firstcenturyisdaunting:policymakersfacethecombinedchal-
lenges of supporting economic activity and employment, keeping
inflation low and risks of financial crises at bay, and navigating the
ever-tighterlinkagesofglobalization.Manyprofessionalsfacedemands
to evaluate the implications of developments and policies for their
business, financial, or public policy decisions. Macroeconomics for
Professionals provides a concise, rigorous, yet intuitive framework for
assessingacountry’smacroeconomicoutlookandpolicies.Drawingon
years of experience at the International Monetary Fund, Leslie
Lipschitz and Susan Schadler have created an operating manual for
professional applied economists and all those required to evaluate
economicanalysis.
LeslieLipschitzwasaneconomistattheInternationalMonetaryFund
for more than thirty-five years. He served as Director of the IMF
Institute, taught at the School of Advanced International Studies at
JohnsHopkinsUniversityandatBowdoinCollege,wasaguestscholar
attheBrookingsInstitution,workedandconsultedwithprivatefinan-
cial institutions, and has written, spoken, and published widely on
open-economymacroeconomics.
SusanSchadlerwasaneconomistattheInternationalMonetaryFund
foroverthirtyyears.Herpublishedarticlesandbookscoverexchange
rate policies, economic growth and crises, how countries adjust in
crises, and the integration of Eastern and Western Europe. Since
leaving the IMF, she has been a senior member of St Antony’s
College,OxfordUniversity,seniorfellowattheAtlanticCounciland
the Centre for International Governance Innovation, and consultant
fortheIMF’sIndependentEvaluationOffice.

Macroeconomics for Professionals
A Guide for Analysts and Those Who Need to
Understand Them
leslie lipschitz
BowdoinCollege
susan schadler
CenterforInternationalGovernanceInnovation
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www.cambridge.org
Informationonthistitle:www.cambridge.org/9781316515891
doi:10.1017/9781108598293
©LeslieLipschitzandSusanSchadler2019
Thispublicationisincopyright.Subjecttostatutoryexception
andtotheprovisionsofrelevantcollectivelicensingagreements,
noreproductionofanypartmaytakeplacewithoutthewritten
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Firstpublished2019
PrintedintheUnitedKingdombyTJInternationalLtd.PadstowCornwall
AcataloguerecordforthispublicationisavailablefromtheBritishLibrary.
LibraryofCongressCataloging-in-PublicationData
names:Lipschitz,Leslie,author.|Schadler,Susan,author.
title:Macroeconomicsforprofessionals:aguideforanalystsandthosewhoneedto
understandthem/LeslieLipschitz,BowdoinCollege,Maine,SusanSchadler,Center
forInternationalGovernanceInnovation.
description:NewYork:CambridgeUniversityPress,[2018]|Includesbibliographical
referencesandindex.
identifiers:lccn2018025214|ISBN9781316515891(hbk.:alk.paper)|isbn
9781108449830(pbk.:alk.paper)
subjects:lcsh:Macroeconomics.
classification:lcchb172.5.l572018|ddc339–dc23
LCrecordavailableathttps://lccn.loc.gov/2018025214
isbn978-1-316-51589-1Hardback
isbn978-1-108-44983-0Paperback
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For Charlotte, Jessica, and Vanessa. After the years of enduring
(andsometimesbeingmovedtoengagein)ferociousdinner-table
debateonissuesofpoliticaleconomy,muchofwhat'sinthisbook
mayseemlikeoldhat.
And for our former colleagues at the IMF who honed our
commitment to getting the macroeconomic diagnosis and
policyprescriptionright.

Contents
Acknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . pageix
GlossaryofSymbolsandAcronyms . . . . . . . . . . . . . . . . . . . . x
Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xvii
1 Introduction,Motivation,andOverview . . . . . . . . . . . . . . . 1
2 RealEconomicActivity . . . . . . . . . . . . . . . . . . . . . . . . 7
1 TheSupplySide. . . . . . . . . . . . . . . . . . . . . . . . . . 10
2 TheDemandSide. . . . . . . . . . . . . . . . . . . . . . . . . 28
3 PlayingwiththeConcepts:MacroeconomicShocksand
PolicyResponses. . . . . . . . . . . . . . . . . . . . . . . . . . 45
4 Exercises. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
3 Inflation,RelativePrices,andExpectations . . . . . . . . . . . . . 53
1 ThePriceLevel,Inflation,andDeflation. . . . . . . . . . . . . 55
2 MacroeconomicAspectsofRelativePrices. . . . . . . . . . . . 61
3 IntertemporalandInternationalLinkages:InterestRates
andExpectations. . . . . . . . . . . . . . . . . . . . . . . . . . 82
4 Exercises. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
4 MonetaryPolicyandAccounts . . . . . . . . . . . . . . . . . . . 95
1 MonetaryPolicyFrameworks. . . . . . . . . . . . . . . . . . . 96
2 PolicymakingunderIT. . . . . . . . . . . . . . . . . . . . . . 108
3 ReadingtheMonetaryAccounts. . . . . . . . . . . . . . . . . 114
4 CountercyclicalPolicyandtheCentralBankBalance
SheetinPractice. . . . . . . . . . . . . . . . . . . . . . . . . 120
vii
viii Contents
5 MonetaryPolicyandVulnerabilities. . . . . . . . . . . . . . . 128
6 Exercises. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141
5 TheFiscalSystem . . . . . . . . . . . . . . . . . . . . . . . . . 147
1 TheGovernmentAccounts. . . . . . . . . . . . . . . . . . . . 149
2 AssessingtheMacroeconomicEffectsofFiscalPolicy. . . . . 159
3 FiscalRules:ABulwarkagainstShort-TermPoliticalPressures. 183
4 ThoughtExperiments. . . . . . . . . . . . . . . . . . . . . . 186
5 Exercises. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 188
6 FinancialStability . . . . . . . . . . . . . . . . . . . . . . . . . . 191
1 BankRegulation:AnIntuitiveSketchof
PrudentialConsiderations. . . . . . . . . . . . . . . . . . . . 193
2 BankRegulation:Terms,Definitions,andDifficulties. . . . . 196
3 TheAnatomyofanEMBalanceSheetCrisis. . . . . . . . . . 206
4 BalanceSheetCrisesandFinancialAssessmentin
AdvancedCountries. . . . . . . . . . . . . . . . . . . . . . . 215
5 Exercises. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 223
7 TheExternalAccounts . . . . . . . . . . . . . . . . . . . . . . . 225
1 UnderstandingtheExternalAccounts. . . . . . . . . . . . . . 226
2 TheMainObjectivesofExternalAccountAnalysis. . . . . . . 239
3 ExternalVulnerabilityandRiskAssessment. . . . . . . . . . . 256
4 Exercises. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 264
Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 268