Macroeconomic adjustment in developing countries

The paper contends that there is no single model that will answer all questions about stabilization and structural adjustment. Instead, evaluators need to choose from a family of models, each of which is designed to highlight a particular aspect of the macroeconomy. Part I of the report provides an outline of the analytical framework, which consists of some national income accounting identities and models (the Keynesian model and various flexible-price models) that link macroeconomic policies with output, employment, inflation, and the current account. Part II presents two case studies, on the Indonesian oil crisis and balancing payments in The Gambia, to illustrate how the analytical framework needs to be sharpened or extended to deal with the realities of development policy. The next step therefore should be to combine the lessons from the case studies with the analytical framework to develop guidelines for policymakers.