Modelling the Macroeconomic Policy Framework for an Emerging Market Economy

Abstract

We propose a macroeconomic model suitable for policy analysis for an emerging market economy (EME). The model neither uncritically applies conventional macro theory nor departs altogether from orthodoxy; rather, it modi¢es the conventional framework and captures the distinctive features of EMEs. The structure of the model is reduced to three equations: aggregate demand, aggregate supply and the balance of payments. We use these directly to derive policy multipliers. The model innovatively encompasses competing hypotheses from the neoclassical and new-structuralist paradigms, and the three-equation format is particularly convenient for simulation experiments and other empirical work for EMEs with ¢nite macroeconomic series.