Fiscal Policy and Economic Growth Essay Example | Topics and Well Written Essays - 1250 words

Fiscal Policy and Economic Growth - Essay Example As the essay stresses countries exposed to large capital flows must avoid intermediate regimes. It is also necessary to adopt a corner regime. According to these proponents, corner regimes sustainable regimes for long run. It has been found that SEA countries also shifted from an intermediate regime to intermediate regime. A vast literature has been dedicated to found out the preferred choice of exchange rate regime. The fundamentals identified by the OCA approach has given some guidance for observed regime choices. In 1980s, studies were focused on the role of shocks on the choice of regimes. This research incorporates considerations for macroeconomic stabilization. According to the report findings the real shocks allow flexibility and symmetry of shocks produces OCA. Shocks have been appeared in countries which have weak financial institutions. The counties with weak financial institutions intervene in the market in order to shield banking industries which are confronting large exchange rate movements. There are many authors who agree SEA countries should adopt a currency basket system in order to gain and maintain exchange rate stability and flexibility. As far as the macroeconomics situations of SEA countries are concerned, the most reasonable choice is managed floating regime. It is because managed floating regime is fewer complexes than currency basket system agree that managed floating regime would be less complex than the currency basket ... In 1980s, studies were focused on the role of shocks on the choice of regimes. This research incorporates considerations for macroeconomic stabilization. Authors have argued that nominal shocks actually raise the possibility of a fixed regime. The real shocks allow flexibility and symmetry of shocks produces OCA. Shocks have been appeared in countries which have weak financial institutions. The counties with weak financial institutions intervene in the market in order to shield banking industries which are confronting large exchange rate movements. There are many authors who agree SEA countries should adopt a currency basket system in order to gain and maintain exchange rate stability and flexibility. As far as the macroeconomics situations of SEA countries are concerned, the most reasonable choice is managed floating regime. It is because managed floating regime is fewer complexes than currency basket system agree that managed floating regime would be less complex than the currency basket (Hossain, M. 2011). Financial liberalization index Figure 1 A cross-country index indicating financial liberalization has been used to identify the development in the sector. It ranges between 0 and 18 (Abiad, 2005). This index is made during the period or 1973 to 1995 (Figure 1 and 2). First figure studies three initial countries i.e. Indonesia, Korea and Malaysia. For the last three years FLI is assumed to be constant. These both graphs indicate the exchange rate regime in six countries. The figure indicates that till 1977 all three countries were focusing on fixed regime but due changing conditions in 1979 Indonesia and Korea shifted to intermediate regime. While Malaysia remained consistent to fixed regime. 1993 onwards all three