- Title
- The independence of macroeconomic policy: the emerging economy case
- Creator
- Abdullah, Saleh Ahmad
- Relation
- University of Newcastle Research Higher Degree Thesis
- Resource Type
- thesis
- Date
- 2025
- Description
- Research Doctorate - Doctor of Philosophy (PhD)
- Description
- Countries like the US and Australia can run an independent monetary and fiscal policy. However, the macroeconomic policy of emerging economies is focused on the balance of payments due to their foreign currency denominated liabilities. Thus, these countries have limited macroeconomic policy freedom. The insights of Modern Monetary Theory (MMT) convey the notion that treasury spending in a domestic currency is not limited ex-ante by financing constraints, although it may have real constraints in terms of the availability of goods and services that have prices denominated in the currency of issue. Drawing on MMT insights, the thesis casts light on the conditions that enable emerging economies to pursue a more independent macroeconomic policy that is less driven by their fiscal and current account positions. The thesis concludes that a fixed exchange rate regime requires the holding of more foreign currency denominated liabilities by the government and the global currency hierarchy indeed underwrites the extent of macroeconomic policy freedom. Emerging economies that have a floating exchange rate can reduce their dependence on foreign currency liabilities. The thesis establishes that government borrowing contributes less to pushing the domestic bond rates upward so long as they are denominated in domestic currency. However, with regard to public liabilities denominated in foreign currency, emerging economies still face challenges, including higher levels of domestic interest rates and default risk. Accordingly, emerging economies must recognise the distinction between domestic and foreign currency denominated liabilities and their distinct macroeconomic impact. Emerging economies can achieve more stable exchange rates through the development of the domestic industrial base, the diversification of exports and the promotion of import substitution. Stable exchange rates will enable emerging economies to borrow in their own currencies from the international market, and thus overcome the balance of payments constraints.
- Subject
- macroeconomic policy; emerging economies; import substitution; diversification of exports
- Identifier
- http://hdl.handle.net/1959.13/1516421
- Identifier
- uon:56977
- Rights
- Copyright 2025 Saleh Ahmad Abdullah
- Language
- eng
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