Economic Instability

5 Key excerpts on "Economic Instability"

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  eBook - PDF

  21st Century Economics: A Reference Handbook

  • Rhona C. Free(Author)
  • 2010(Publication Date)
  • SAGE Publications, Inc

    (Publisher)

  3 4 Economic Instability AND MACROECONOMIC POLICY JOHN VAHALY University of Louisville M acroEconomic Instability and the business cycle are generally understood as changes in output or gross domestic product (GDP), unemployment, and inflation rates. The economy has a long-run growth path that is subject to short-term macro-economic demand and supply shocks that push GDP away from its long-run potential or trend growth rate. Smith and the classical tradition that followed believed a hands-off approach was the correct policy stabilization to pursue when such short-term output disturbances arose. This reflected classical emphasis on long-run growth as a sup-ply process that was best left to private entrepreneurial activity. Furthermore, private market economies would automatically self-correct through appropriate wage and price adjustments. Recessions, characterized by gluts of commodities and workers, would produce downward pressure on market prices and wages. Deflation continued until the economy had returned to full output. Prior to the twentieth century, the classical school's reliance on self-correcting private markets, a commodity gold standard, and promotion of free trade broadly defined macroeconomics. Fiscal policy was viewed as the means by which government provided necessary public goods and services, with deficit spending occurring because of either war or weakness in the economy that lowered government tax receipts. Monetary policy for the United States, operating without a central bank until 1914, similarly was not considered a macroeconomic stabiliza-tion tool. Financial difficulties before and during the Great Depression were to change that. The Creation of the Federal Reserve System Modern study of Economic Instability in the United States begins with the Great Depression. Prior to the 1930s, economists treated macroEconomic Instability as a difficulty best resolved by private markets.

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  Economic Growth Of Singapore In The Twentieth Century: Historical Gdp Estimates And Empirical Investigations

  Historical GDP Estimates and Empirical Investigations

  • Ichiro Sugimoto(Author)
  • 2011(Publication Date)
  • World Scientific

    (Publisher)

  Therefore, econo-metric tests based on only those variables for which data were available were made and are described in Section 4.4. 4.2.3 The Effect of Economic Instability to Economic Growth 4.2.3.1 Export Instability How Economic Instability affects economic growth has been an issue of research, initiated by the work of Ramey et al . (1994), who found that countries with large fluctuations in growth rates were inclined to have lower average growth rates. Many studies were conducted to identify the determinant variables relating to this issue, their focus being particularly with the effect of export instability on economic growth for both developed and develop-ing nations. These studies found all three possible kinds of rela-tionships between export instability and economic growth, namely, positive, negative, and no relationship. Studies by McBean (1966) and Knudsen et al . (1975) found a positive relationship between the two variables. Their study argues that uncertainty of export earnings can lead to reduc-tion in consumption and, in turn, an increase in savings and Economic Instability and Economic Growth in Singapore ✦ 201 investments, and thus economic growth. The conventional meas-ure of export instability, on the other hand, leads to an opposite conclusion that export instability has a negative impact on eco-nomic growth (Abraha, 2004; Dawe, 1996; Dupasquier and Patrick, 2006; Feder, 1984; Glezakos, 1973; Knudsen, 1975; Lim David, 1974, 1976; Moran, 1983; Ozler et al ., 1988; Rangarajan et al ., 1976; Sinha, 1999 and Voivodas, 1974). A study by Sinha (1999) examined the relationship between export instability and investment and economic growth in nine Asian countries using time-series data (around 1950–97).

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  Economic Insecurity and Development

  • (Author)
  • 2010(Publication Date)
  • United Nations Publications

    (Publisher)

  Moreover, the recent surge in fuel and food prices is putting pressure on inflation and may lead to a rapid deterioration of income among households, reversing much of the gains made by countries in the area of poverty reduction. The lack of control over these variables, especially by smaller economies that cannot influence the external environment, has created greater and harder-to-manage economic insecurity. At the same time, the weight and influence of financial markets, financial actors and financial institutions have grown dramatically in recent decades (see below). This could have provided a stimulus to growth, but the volatile and pro-cyclical nature of capital flows has at the same time turned the financial growth into a source of economic insecurity. Their effects are often transmitted by way of public sector accounts, especially through the effects of available financing on government spending and of interest rates on the public debt service. However, the stronger effects typically run through private spending and balance sheets. The shift towards export-led strategies in the developing world has actually accentuated this pattern in many countries. The growing influence of financial calculation has increased commodity price volatility, the impact of which on the business cycle is further amplified by pro-cyclical policies, among others, by expanding fiscal expenditures during the boom and reducing spending when prices are down. The latter is reinforced by the conditionality linked to international financial assistance during crises, which involves orthodox macroeconomic stabilization policy packages. These financial dynamics have far-reaching implications for the real economy. Episodes of exceptionally rapid economic expansion driven by financial bubbles can bring periods of growing prosperity, but they can end very suddenly, leading to deep recessions or even longer periods of stagnation.

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  Macrodynamics: Fluctuations and Growth

  A study of the economy in equilibrium and disequilibrium

  • Pierre-Yves Hénin(Author)
  • 2013(Publication Date)
  • Routledge

    (Publisher)

  Part 4 Instability in the Short Term: Disequilibria, Inflation, Unemployment

  Whilst the old distinction between growth and fluctuations came into doubt at the same time as did the inevitability of a regular cycle, it remains convenient to group together analyses of a series of problems which belong in the field of short-period analysis. The short term is the special domain of disequilibria which are resolved in the long term through various regulatory mechanisms.

  Throughout the post-Keynesian period, unemployment was the most conspicuous form of disequilibrium at the macroeconomic level; more recently, inflation came to be perceived as the manifestation of an opposite disequilibrium. When, at the end of the 1960s, these conditions appeared simultaneously, the notion of ‘stagflation’ was introduced to describe a state of affairs perceived, in the standard macroeconomics of the time, as an abnormality.

  Methodologically, the study of short-period instability harks back initially to the analysis of fluctuations, which will be the subject of chapter 10 . The real or imagined need to choose between inflation and unemployment, which crystallises the disagreements of various theoretical approaches, will be dealt with in chapter 11 . Finally, the last chapter will look at present-day disequilibria, both as empirical observation of the progressive rise of various indicators over the past twenty years or so, and as central concept of a theoretical reformulation which may supersede the aggregative and static Keynesian texts, if not the very kernel of their arguments, to set out the problem of dynamic regulation of a decentralised economy in its fullest generality.

  Passage contains an image 10 The Analysis of Fluctuations

  Keynesian theory signified a departure from traditional business cycle theories,1

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  Farm Policy Analysis

  • Luther Tweeten(Author)
  • 2019(Publication Date)
  • CRC Press

    (Publisher)

  CHAPTER FIVE Farm Problems: Instability As noted in Chapter 1, commercial farmers on the average are far from poverty and they have substantial net worth. Their major problem is annual and cyclical instability. Small farmers too experience instability from farming but for the majority that instability is buffered by off-farm income. Price and income instability reemerged as a major problem of agriculture in the 1970s and 1980s. The problem dates to the very origins of commercial agriculture but was obscured in modem times by low income problems of the 1930s, high farm prices in the 1940s, and government commodity programs of the 1950s and 1960s. Ability of commercial agriculture to adjust and earn adequate returns as noted in the previous chapter creates optimism for the long-term average level of farm inccxne. But the food balance is expected to oscillate between excess supply and excess demand, creating instability in an economic environment of inadequate buffer stocks and other shock absorbers. This chapter begins with definitions and measures of uncertainty and instability, then examines the relationship between instability and economic efficiency. The chapter concludes with analysis of buffer stock and other policies for dealing with instability. DEFINITIONS AND SOURCES OF INSTABILITY Following Frank Knight, we define risk as a situation in which outcomes are variable (random) but the distribution of outcomes is known. Uncertainty is also defined as a situation in which outcomes are variable, but the distribution is unknown or meaningle-ss in the mind of the decision-maker. Because the degree of knowledge of the parameters of the distribution of future events ranges in a continuum fix>m nearly perfect to highly imperfect, and because the decision-maker is likely to have some subjective concept of the distribution of outcomes, the distinction between risk and uncertainty is too blurred to be useful.

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