ABSTRACT
The development process of an economy is a complex one. The reality is that the appropriate macroeconomic policy framework for DEs remains a hotly debated issue within the economics profession, more so at the empirical level. In the context of industrial nations (DCs), the conventional way of analyzing complicated dynamic macroeconomic phenomena such as those of stabilisation, adjustment, and growth is through the use of macroeconometric models. Simulations of such models are often used to explore policy trade-offs in complex dynamic settings (Wallis, 1993). Despite the fact that a large number of macroeconometric models have been estimated for the DEs (Khan, Montiel, and Haque, 1991), the state of the art is substantially less advanced than it is for the DCs. Hence, in this dissertation, we attempted to model the macroeconomic adjustment problems confronting the DEs and implement in the case of India. This study has attempted a broad survey of existing macroeconomic models, and we learnt that there is considerable disagreement among models. The emerging problems are slackening in growth, BOP difficulties and high inflation. The policy recipe to these problems has been the application of stylized Bank-Fund model in many DEs including India. We have highlighted the dilemma the model poses with regard to credit and demand restraint that it is necessary to curb inflation and promote growth, whereas we argue that such restraint leads to shortages of working capital and, therefore stifles industrial growth. Similar discussion along these lines between mainstream thinking and alternative model with regard to their analytical structures and policy prescriptions has been provided in Jha (1994).
