Show simple item record

Macroeconomic Policy and Poverty

dc.contributor.authorIwan Azis
dc.date.accessioned2015-04-10T10:16:34Z
dc.date.available2015-04-10T10:16:34Z
dc.date.issued2008-06-15
dc.identifier.urihttp://hdl.handle.net/11540/3699
dc.description.abstractSlower growth and higher inflation can worsen poverty. By implication, maintaining macroeconomic stability is necessary to reduce poverty. When a typical aggregate demand (AD) policy for stabilization is not effective, however, its impact on poverty could be devastating as incomes of the poor typically decline with falling output. In this study, I argue that when poverty reduction is included in welfare objectives, it is imperative that policymakers weigh the impact of macroeconomic policy on the poverty line and household incomes. I address this issue by exploring the theoretical and empirical link between output, price, poverty line, and household incomes, and juxtapose them with their combined effect on poverty. Central to my argument is the premise that neither growth itself nor stability per se is the answer to poverty reduction. Applying a structural vector autoregression (SVAR) with the Blanchard-Quah (B-Q) restriction to the data of two Asian countries, Thailand and Indonesia, it was revealed that the aggregate supply (AS) curves in both countries are flat, implying that a stabilization policy based on AD shock is not effective. On the other hand, an AD expansion can produce non-inflationary growth and raise the incomes of the poor. To the extent that the transmission mechanism through which output affects household incomes is complex, involving direct, indirect, and feedback effects within an economy-wide system, a general equilibrium model with a detailed financial block was used. From the model simulations, poverty and income inequality results were found to be sensitive to the type of shock, price elasticity of wages, and structure of the economy, particularly the mechanisms by which the financial sector affects household income. While a positive fiscal shock tends to reduce poverty in Thailand, but not in Indonesia, the effect of an expansionary monetary policy on poverty can be either favorable or unfavorable. As shown in the Indonesia case, when the price elasticity of wages is low, the effect can be favorable but it can be unfavorable if the elasticity is high. An expansionary policy can raise the earnings of financial asset holders (i.e., higher income households) more than the incomes of the poor, as is the case in Indonesia, but not in Thailand. A fundamental gain from using the approach is to allow policymakers to measure the intensity of the trade-offs between growth, stability, and poverty, based upon which macroeconomic stability with lower poverty can be achieved.
dc.languageEnglish
dc.publisherAsian Development Bank
dc.rightsCC BY 3.0 IGO
dc.rights.urihttp://creativecommons.org/licenses/by/3.0/igo
dc.titleMacroeconomic Policy and Poverty
dc.typeWorking Papers
dc.subject.expertMacroeconomic
dc.subject.expertMacroeconomic Analysis
dc.subject.expertPerformance Evaluation
dc.subject.expertImpact Evaluation
dc.subject.adbEconomic indicators
dc.subject.adbGrowth models
dc.subject.adbGross domestic product
dc.subject.adbMacroeconomics
dc.subject.adbEconomic forecast
dc.subject.naturalExports
dc.subject.naturalEconomic development projects
dc.subject.naturalEconomic policy
dc.subject.naturalEconomic forecasting
dc.title.seriesADBI Working Paper Series
dc.title.volume111
dc.contributor.imprintAsian Development Bank
oar.themeEconomics
oar.themeEvaluation
oar.themeLabor Migration
oar.adminregionAsia and the Pacific Region
oar.countryBangladesh
oar.countryBhutan
oar.countryIndia
oar.countryMaldives
oar.countryNepal
oar.countrySri Lanka
oar.countryBrunei Darussalam
oar.countryCambodia
oar.countryIndonesia
oar.countryLao People's Democratic
oar.countryMalaysia
oar.countryMyanmar
oar.countryPhilippines
oar.countrySingapore
oar.countryThailand
oar.countryViet Nam
oar.countryCook Islands
oar.countryFiji Islands
oar.countryKiribati
oar.countryMarshall Islands
oar.countryFederated States of Micronesia
oar.countryNauru
oar.countryPalau
oar.countryPapua New Guinea
oar.countrySamoa
oar.countrySolomon Islands
oar.countryTimor-Leste
oar.countryTonga
oar.countryTuvalu
oar.countryVanuatu
oar.countryAfghanistan
oar.countryArmenia
oar.countryAzerbaijan
oar.countryGeorgia
oar.countryKazakhstan
oar.countryKyrgyz Republic
oar.countryPakistan
oar.countryTajikistan
oar.countryTurkmenistan
oar.countryUzbekistan
oar.countryPeople's Republic of China
oar.countryHong Kong
oar.countryChina
oar.countryRepublic of Korea
oar.countryMongolia
oar.countryTaipei,China
oar.identifierOAR-004279
oar.authorAzis, Iwan
oar.importtrue
oar.googlescholar.linkpresenttrue


Files in this item

Thumbnail

This item appears in the following Collection(s)

  • ADBI Working Papers
    The Asian Development Bank Institute (ADBI) Working Paper series is a continuation of the formerly named Discussion Paper series which began in January 2003. The numbering of the papers continued without interruption or change. ADBI was established in 1997 in Tokyo, Japan, to help build capacity, skills, and knowledge related to poverty reduction and other areas that support long-term growth and competitiveness in developing economies in Asia and the Pacific.

Show simple item record

Users also downloaded