Economic Analysis of Policy-based Operations: Key Dimensions

Abstract

An appreciation of the macroeconomic context and the mesoeconomic channels through which sector policy changes are carried out helps identify key influences on sector policy. The macroeconomic context, such as growth, inflation, unemployment, and the balance of payments, and key macroeconomic variables, such as interest rates, money supply, and foreign exchange rates can greatly influence the outcome of sector policy reforms. For example, vulnerability to external change and crises can trigger system-wide policy changes and affect the outcomes of structural and sector reforms. Similarly, sector reforms can have feedback effects on the macroeconomy.