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Workshop for Staff of
Ministry of National Planning and Economic Development
Nay Pyi Taw, Myanmar
June 2 – 3, 2014
JGtthlk
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TAOLAMTAOLAM
IMF-TAOLAM training activities are supported by funding of the Government of Japan
OutlineOutline
I. Defining Macroeconomics
II. Long-Run Economic Growth
III. Economic Fluctuations
IV. Macroeconomic Policy Objectives
2
This training material is the property of the International Monetary Fund (IMF) and is intended for the use in IMF courses.
Any reuse requires the permission of the IMF.
Defining MacroeconomicsDefining Macroeconomics
Macroeconomics takes a top-down view:
It’s about economy-wide
aggregates such as
•
GDP
•
GDP
• CPI
•
Fiscal budgets
Fiscal
budgets
• Credit growth
• Current account
3
Defining MacroeconomicsDefining Macroeconomics
Fiscal
Policies
Real
Sector
G, T
Policies
Sector
Monetary financing
/h
Monetary
financing
Interest rates
/
exc
h
ange
rate
CA=S-I
Monetary
Policies
Balance of
Payments
RM=NFA+NDC
4
Defining MacroeconomicsDefining Macroeconomics
Practical applications:
• Macroeconomic management:
Avoid crisis!
Support economic growth
Keep inflation moderately low
• Economic forecasting:
Macroeconomic forecasts are an input into
macroeconomic management
macroeconomic
management
But they are also of interest to businesses, financial
markets etc.
5
Defining MacroeconomicsDefining Macroeconomics
Two main issues:
• Determinants of long-run economic growth
Last 200 years were very successful
But progress can be uneven (e.g., see Myanmar and
Thailand)
• Sources of economic fluctuations:
Business cycles
Economic crises
6
OutlineOutline
I. Defining Macroeconomics
II. Long-Run Economic Growth
III. Economic Fluctuations
IV. Macroeconomic Policy Objectives
7
LongLong--Run Economic Growth: The World in 1800Run Economic Growth: The World in 1800
8
Source: Brad DeLong: Econ 2, Spring 2014, Long-run economic growth
LongLong--Run Economic Growth: Run Economic Growth:
The Great Diver
g
ence to 1968The Great Diver
g
ence to 1968
gg
9
Source: Brad DeLong: Econ 2, Spring 2014, Long-run economic growth
LongLong--Run Economic Growth:Run Economic Growth:
Conver
g
ence PostConver
g
ence Post--1968?1968?
gg
10
Source: Brad DeLong: Econ 2, Spring 2014, Long-run economic growth
Economic Growth in Myanmar & ThailandEconomic Growth in Myanmar & Thailand
15%
GDP Growth per Capita (Constant LCU, Change in %)
5%
10%
-5%
0%
Myanmar
Thailand
-15%
-10%
0
4
0
4
0
4
0
4
0
4
0
11
196
0
1962
196
4
1966
1968
197
0
1972
197
4
1976
1978
198
0
1982
198
4
1986
1988
199
0
1992
199
4
1996
1998
200
0
2002
200
4
2006
2008
201
0
2012
Economic Growth in Myanmar & ThailandEconomic Growth in Myanmar & Thailand
900
1,000
GDP per Capita (Constant LCU, 1960=100)
600
700
800
300
400
500
Myanmar
Thailand
0
100
200
0
2
4
6
8
0
2
4
6
8
0
2
4
6
8
0
2
4
6
8
0
2
4
6
8
0
2
12
196
0
196
2
196
4
196
6
196
8
197
0
197
2
197
4
197
6
197
8
198
0
198
2
198
4
198
6
198
8
199
0
199
2
199
4
199
6
199
8
200
0
200
2
200
4
200
6
200
8
201
0
201
2
Economic Growth in Myanmar & ThailandEconomic Growth in Myanmar & Thailand
6,000
GDP per Capita in US Dollars
4,000
5,000
2,000
3,000
Myanmar
Thailand
0
1,000
13
0
2009 2010 2011
OutlineOutline
I. Defining Macroeconomics
II. Long-Run Economic Growth
III. Economic Fluctuations
IV. Macroeconomic Policy Objectives
14
Economic Fluctuations: Business CyclesEconomic Fluctuations: Business Cycles
Unemployment in the United States
15
Source: Brad DeLong: Econ 2, Spring 2014, Budgeting & Macro Policy
Economic Fluctuations: Business CyclesEconomic Fluctuations: Business Cycles
Output fluctuations: potential GDP & output gap
Cl id
16 000
•
Cl
ear ev
id
ence
for regular
economic
fluctuations
13 000
14,000
15,000
16
,
000
fluctuations
business cycle
• Attributed
10 000
11,000
12,000
13
,
000
fluctuations in
aggregate demand
• But does it
9,000
10
,
000
5
Q1
6
Q2
7
Q3
8
Q4
0
Q1
1Q2
2
Q3
3
Q4
5
Q1
6
Q2
7
Q3
8
Q4
0
Q1
1Q2
2
Q3
3
Q4
matter for
Myanmar?
199
5
199
6
199
7
199
8
200
0
200
200
2
200
3
200
5
200
6
200
7
200
8
201
0
201
201
2
201
3
Real GDP (billions of 2009 US$)
P i l (billi f 2009 US$)
16
P
otent
i
a
l
output
(billi
ons o
f
2009
US$)
Economic Fluctuations: Economic CrisesEconomic Fluctuations: Economic Crises
Economic crises have a major economic impact
• Sharp drop in output level (deep recession)
•
Large loss in currency value (currency crisis)
Large
loss
in
currency
value
(currency
crisis)
• High inflation (often in the wake of a currency
crisis)
crisis)
• Banking/financial sector crisis
•
Large drop in asset prices
Large
drop
in
asset
prices
17
Economic Fluctuations: Economic CrisesEconomic Fluctuations: Economic Crises
Risk of economic crises cannot be ignored
• Sizeable number of economic crises occurred in
past twenty years
• Historically, economic crises are not rare
•
Causes vary: sometimes it is unsustainable fiscal
Causes
vary:
sometimes
it
is
unsustainable
fiscal
policies, often the vagaries of capital flows
•
Opening up of Myanmar
’
s economy brings many
Opening
up
of
Myanmar s
economy
brings
many
benefits but also risks
18
Economic Fluctuations: Economic CrisesEconomic Fluctuations: Economic Crises
Selected examples: Thailand (Asian Crisis, 1997-98)
80%
100%
40
45
50
Currency Depreciation
10%
15%
Annual Real GDP Growth
20%
40%
60%
25
30
35
40
0%
5%
-20%
0%
20%
5
10
15
20
15%
-10%
-5%
-40%0
1994Q1
1994Q4
1995Q3
1996Q2
1997Q1
1997Q4
1998Q3
1999Q2
2000Q1
2000Q4
2001Q3
-20%
-
15%
1994
Q
1994
Q
1995
Q
1996
Q
1997
Q
1997
Q
1998
Q
1999
Q
2000
Q
2000
Q
2001
Q
19
Bath per US dollar, left axis
Annual change in % (y-o-y), right axis
Q
1
Q
4
Q
3
Q
2
Q
1
Q
4
Q
3
Q
2
Q
1
Q
4
Q
3
Annual change in % (y-o-y)
Economic Fluctuations: Economic CrisesEconomic Fluctuations: Economic Crises
Selected examples: Mexico (1994-95)
100%
120%
8
9
Currency Depreciation
6%
8%
Annual Real GDP Growth
40%
60%
80%
4
5
6
7
-
2%
0%
2%
4%
0%
20%
40%
1
2
3
4
-8%
-6%
-4%
-
2%
-20%0
1993Q1
1993Q3
1994Q1
1994Q3
1995Q1
1995Q3
1996Q1
1996Q3
-12%
-10%
1993
Q
1993
Q
1994
Q
1994
Q
1995
Q
1995
Q
1996
Q
1996
Q
20
Peso per US dollar, left axis
Annual change in % (y-o-y), right axis
Q
1
Q
3
Q
1
Q
3
Q
1
Q
3
Q
1
Q
3
Annual change in % (y-o-y), right axis
Economic Fluctuations: Economic CrisesEconomic Fluctuations: Economic Crises
Selected examples: Russia (1998-99)
300%
350%
25
30
Currency Depreciation
10%
15%
Annual Real GDP Growth
150%
200%
250%
15
20
0%
5%
0%
50%
100%
5
10
-10%
-5%
-50%0
1996Q1
1996Q3
1997Q1
1997Q3
1998Q1
1998Q3
1999Q1
1999Q3
2000Q1
2000Q3
bbl d ll l f i
-15%
1996
Q
1996
Q
1997
Q
1997
Q
1998
Q
1998
Q
1999
Q
1999
Q
2000
Q
2000
Q
21
Ru
bbl
e per US
d
o
ll
ar,
l
e
f
t ax
i
s
Annual change in % (y-o-y), right axis
Q
1
Q
3
Q
1
Q
3
Q
1
Q
3
Q
1
Q
3
Q
1
Q
3
Annual change in % (y-o-y), right axis
Economic Fluctuations: Economic CrisesEconomic Fluctuations: Economic Crises
Selected examples: Global Financial Crisis—U.S.A.
United States: Real GDP
130
140
United
States:
Real
GDP
100
110
120
Real GDP, 2005=100
70
80
90
100
Hypothetical GDP
p
ath based on
60
70
0
Q1
1
Q2
2
Q3
3
Q4
5
Q1
6
Q2
7
Q3
8
Q4
0
Q1
1
Q2
2
Q3
3
Q4
p
average 1991-2005
growth
22
200
0
200
1
200
2
200
3
200
5
200
6
200
7
200
8
201
0
201
1
201
2
201
3
Economic Fluctuations: Economic CrisesEconomic Fluctuations: Economic Crises
Selected examples: Global Financial Crisis—UK
United Kin
g
dom: Real GDP
120
130
140
g
100
110
120
Real GDP,
2005=100
70
80
90
Hypothetical GDP
path based on
60
70
0
Q1
1
Q3
3
Q1
4
Q3
6
Q1
7
Q3
9
Q1
0
Q3
2
Q1
3
Q3
average 1991-
2005 growth
23
200
0
200
1
200
3
200
4
200
6
200
7
200
9
201
0
201
2
201
3
Economic Fluctuations: Economic CrisesEconomic Fluctuations: Economic Crises
Selected examples: Global Financial Crisis—Spain
Spain: Real GDP
130
140
Spain:
Real
GDP
100
110
120
Real GDP, 2005=100
70
80
90
Hypothetical GDP
path based on
60
70
0
Q1
1
Q1
2
Q1
3
Q1
4
Q1
5
Q1
6
Q1
7
Q1
8
Q1
9
Q1
0
Q1
1
Q1
2
Q1
3
Q1
average 1991-2005
growth
24
200
0
200
1
200
2
200
3
200
4
200
5
200
6
200
7
200
8
200
9
201
0
201
1
201
2
201
3
OutlineOutline
I. Defining Macroeconomics
II. Long-Run Economic Growth
III. Economic Fluctuations
IV. Macroeconomic Policy Objectives
25
Objectives of Macroeconomic PoliciesObjectives of Macroeconomic Policies
General objectives of fiscal and monetary policies
• Promote sustainable economic growth and
development
development
• High employment
• Macroeconomic stability
26
Objectives of Macroeconomic PoliciesObjectives of Macroeconomic Policies
Maintaining macroeconomic stability
• “The macroeconomic framework can be described
as stable when inflation is low and
p
redictable, real
• “The macroeconomic framework can be described
as stable when inflation is low and
p
redictable, real
p
interest rates are appropriate, fiscal policy is stable
and sustainable, the real exchange rate is
competitive and predictable, and the BOP situation
is perceived as viable
”
Fischer (1993)
p
interest rates are appropriate, fiscal policy is stable
and sustainable, the real exchange rate is
competitive and predictable, and the BOP situation
is perceived as viable
”
Fischer (1993)
is
perceived
as
viable
.
Fischer
(1993)is
perceived
as
viable
.
Fischer
(1993)
27
Objectives of Macroeconomic PoliciesObjectives of Macroeconomic Policies
Internal and external stability
At a broader level, it’s about internal and
external stability …
28
Objectives of Macroeconomic PoliciesObjectives of Macroeconomic Policies
Internal stability
Aidi hti fth !Aidi hti fth !
A
vo
idi
ng over
h
ea
ti
ng o
f
th
e economy
!A
vo
idi
ng over
h
ea
ti
ng o
f
th
e economy
!
• Demand ≈ Supply
• Output is close to
potential
• Inflation pressures
are moderate
29
Objectives of Macroeconomic PoliciesObjectives of Macroeconomic Policies
External stability
Aidi l dd f i h tfl !Aidi l dd f i h tfl !
A
vo
idi
ng
l
arge, su
dd
en
f
ore
i
gn exc
h
ange ou
tfl
ows
!A
vo
idi
ng
l
arge, su
dd
en
f
ore
i
gn exc
h
ange ou
tfl
ows
!
• Current account
hl i b l
roug
hl
y
i
n
b
a
l
ance
• Or current account
deficits can be
deficits
can
be
sustainably
financed
financed
30
OutlookOutlook
We will explore these issues in more detail by …
• … taking a closer look at the individual
macroeconomic sectors (real, fiscal, external,
monetary)
• … discussin
g
p
olic
y
makin
g
and its
gp y g
implementation (monetary and treasury
operations)
• … reviewing economic developments and
outlook in Myanmar
31
