ABSTRACT
We have already noted, in the previous section, the potential impact of a change in the real exchange rate on capacity utilization. With respect to the second dimension, there has of course been no shortage of growth models going back to those developed by Roy Harrod and Evsey Domar in the 1940s. A variant of these models is still used in the World Bank (under the acronym RMSM, pronounced ‘Rimsim’) and in the Fund to make medium-term macroeconomic projections.9 One may wonder at the survival of these models which omit what are nowadays considered the most important factors determining the growth of developing countries, such as outward orientation, realistic prices, privatization, reform of the financial sector and, in general, governmental attitudes toward the economy. But even if these models are accepted as simply spelling out one possible road to growth, their domination by long-term supply factors makes them too far removed from the short-term, demand-type monetary models to expect success in cross-breeding these two types of models.10
