Anthony J. Makin

Griffith University · Department of Accounting, Finance and Economics

This paper analyses the macroeconomic gains to Asia-Pacific economies from liberalising foreign investment flows. It first presents an intertemporal theoretical framework to convey, in principle, how higher national income stems from the narrowing of the gap between domestic and foreign rates of return on capital. Using a computable general equilib...

Governments around the world responded to the COVID19 crisis (CVC) by aggressively deploying fiscal policy to boost health expenditure, income transfers and increased welfare payments, as well as wage subsidies to firms to retain employees to minimize short term unemployment. A fiscal response was in principle both necessary and timely, but the nat...

This paper proposes lessons for macroeconomic policy stemming from the monetary and fiscal responses to the 2008–09 Global Financial Crisis, with an emphasis on Australia’s experience. After canvassing hitherto underemphasised global factors leading up to the crisis, including China’s rise and its effect on global saving, external imbalances and wo...

In the extensive literature on the role of government in the economy scant attention has been paid to the influence of the relative size of government on an economy's rate of growth. This paper canvasses perspectives on why the size of government has grown, how this affects the wider economy, and why a trade-off exists between increased government...

Expanded international trade in goods and services has driven economic development in the Asia-Pacific since the 1994 APEC Bogor declaration that called for free trade and investment in the region. Despite this goal, APEC has predominantly focussed on international trade rather than investment. To redress this bias, the paper first highlights the b...

This chapter further extends the loanable funds framework to consider the implications for national income that stem from investment and international trade crowding out effects, again with reference to the alternative contexts of closed economy, and open economy with different degrees of international capital mobility.

This chapter evaluates the nexus between budgetary policy and confidence, summarises the key failings of fiscal activism, and suggests fiscal policy goals.

This chapter posits the basic macro-foundations for subsequent analysis. It introduces the classic loanable funds approach, before rendering the Keynesian cross framework underpinning textbook macroeconomics to introduce alternative perspectives on the efficacy of fiscal stimulus and the link between absorption, output and the trade balance.

This chapter highlights the role of the money supply and the exchange rate in an open economy aggregate demand-oriented model of fiscal and monetary policy, including analysis of fiscal versus monetary stimulus and the effectiveness of countercyclical fiscal and monetary policy with inflation targeting.

This chapter analyses the crowding out effects of budget deficits and rising public debt arising from extra government spending and tax cuts, in the contexts of a closed economy, an open economy with perfect capital mobility, and an open economy with imperfect capital mobility.

This chapter provides a critical overview of the Keynesian revival since the Global Financial Crisis. It discusses the G20 fiscal response to the crisis, as well as introducing a range of non-Keynesian perspectives. It also examines the significance of the multiplier and briefly summarises the themes of subsequent chapters.

This chapter examines fiscal consolidation, revealing that just as fiscal stimulus can negatively impact the economy, fiscal consolidation can have positive effects, although the nature of the fiscal repair is critical.

This chapter analyses links between budget and external deficits with reference to the dependent economy approach based on the dichotomy between internationally tradable and non-tradable goods and services.

This book presents alternative macroeconomic perspectives, primarily open economy, on the limitations of discretionary fiscal policy, with a focus on government spending. Following an overview on the post-crisis Keynesian revival and of the macro-foundations needed for subsequent analysis, different perspectives are expounded that highlight the fai...

This paper presents a simple framework for analysing the operation and effectiveness of monetary policy in open economies in the spirit of aggregative approaches that are the mainstay of intermediate macroeconomic theory. Combining standard macroeconomic relations with precepts from international finance, it provides new lessons for the conduct of...

This paper examines the nexus between excess currency growth and inflation in Australia. It first canvasses the operation of monetary policy. Using different econometric techniques, it next examines how well excess money supply growth, measured in terms of currency and M3, explains Australia's inflation over the long term from 1970–2015, and then m...

This paper focuses on Vietnam's exchange rate whose official rate has been pegged by the State Bank against the US dollar since 1989 despite wider market liberalisation over this time. Whether Vietnam's official exchange rate is appropriately valued has important implications for the economy's international competitiveness, trade balance and gross...

Australia has experienced one of the fastest rises in public debt in the world since the Global Financial Crisis. Federal budget deficits have persisted for longer than previous fiscal stimulus episodes in the 1980s and 1990s. Subsequent fiscal repair has also been weaker and less than in the United States, United Kingdom, New Zealand and the Euro...

This book first canvasses the causes and consequences of globalization and the meaning and significance of international monetary and financial data, before exploring in depth the determinants of exchange rates, international competitiveness, interest rates, saving, investment, capital flows, current account imbalances, money demand and supply, inf...

Australia has experienced one of the fastest growing public debt levels in the world post-Global Financial Crisis due to a series of large federal budget deficits driven by high government spending. In this paper we examine the balance sheet implications of this escalating public debt, before proposing some macro-fiscal objectives for determining i...

This paper contends that worldwide fiscal excess, as embodied in heightened public debt levels, is central to understanding why global growth has been sub-optimal since the transatlantic crisis. It notes that in the five years before the 2009-10 financial crisis average world economic growth was close to 5 per cent per year, but has since averaged...

The paper examines the impact of world commodity prices on national output and trade balances in Australia, Canada, New Zealand, and Norway, OECD economies that, unlike other advanced economies, are heavily dependent on commodity exports. Contrary to Dutch disease theory based on real exchange rate adjustment, it highlights the relative price effec...

The relationship between major East Asian economies' international reserves and internationalization of their currencies presents a seeming paradox in international finance. While large international reserves may be expected to foster more widespread global use of a currency, strong growth of international reserves has been associated with very low...

This paper proposes a new measure of competitiveness based on the ratio of non-tradable goods and services prices to tradable goods and services prices. It first presents a straightforward framework for understanding how key macroeconomic variables determine this alternative competitiveness measure with reference to output and expenditure behaviour...

Since the 1980s, global foreign investment flows have at times grown faster than world output and world trade. Many advanced and emerging economies have welcomed, indeed actively encouraged, foreign direct investment (FDI) from abroad, cognisant of the new technology and expertise it transfers. Even though governments of different ideological persu...

In May 2014, Griffith University and the Lowy Institute for International Policy jointly organized the conference ‘G20 and Development’. This conference brought together academics, policymakers, representatives of the civil society and other development stakeholders to discuss the role of the G20 as a development actor. Four key themes were address...

Since the Global Financial Crisis the public indebtedness of Australia’s States and Territories has risen significantly due to sizeable fiscal deficits. This paper examines the stability of sub-national governments’ indebtedness before gauging the fiscal effort needed to scale back public debt to GSP ratios to ten-year average levels. To do this, w...

Three different measures of Australia's competitiveness all suggest Australia has a serious competitiveness problem and this is showing up in lower growth. Australia will not durably improve its competitiveness without serious fiscal and structural reform.

This paper presents a new framework for reconciling contrasting interpretations of the impact of world commodity prices on the Australian economy. Focusing on the relative price of commodities to other goods and services rather than the real exchange rate, it shows that a commodity price boost alters the composition, but not level of GDP, while sim...

This article theoretically examines the impact of different forms of government spending on national income in a financially open economy with a significant net international investment position the central bank of which sets domestic interest rates to target inflation. It shows that whether government spending is expansionary or contractionary ult...

This paper critiques the revival of fiscal activism by the G20 in response to the global financial crisis of 2008–9. It first re-examines the international macroeconomic conditions leading up to that crisis, before highlighting the paradoxes and pitfalls of revived fiscal activism for advanced economies. It argues that the harmful legacy of budget...

This paper examines the extent to which foreign borrowing funds private investment, consumption and government expenditure in the United States, the United Kingdom, Australia, and New Zealand (the Anglosphere), advanced economies which have been the world's largest international borrowers since 1990. Using a bivariate predictive regression model, w...

To counter the impact of the 2007-09 global financial crisis on the real sectors of their economies, governments worldwide used fiscal policy to stimulate macroeconomic activity, though the effectiveness of such measures remains an issue of debate. This chapter aims to improve conceptual understanding of the nexus between budget deficits and the re...

In 2009-10 governments around the world implemented unprecedented fiscal stimulus in order to counter the impact of the Global Financial Crisis of 2008-09. This paper analyses the impact of fiscal stimulus using a dynamic open economy, overlapping generations model that allows for feedback effects of fiscal stimulus on private sector expenditure vi...

This paper re-examines the relationship between fiscal imbalances and net foreign borrowing. A general analytical approach is first developed which suggests that, other things equal, a rise (fall) in any advanced economy’s fiscal deficit should be fully matched by a rise (fall) in its net foreign borrowing, in accordance with the so-called twin def...

This paper analyses the policy effectiveness of government spending in a two-sector open economy whose output and expenditure is comprised of tradables and non-tradables. This framework reveals that government spending on either tradables or, more normally, on non-tradables widens the external deficit, yet how the real exchange rate behaves depends...

This article derives new results of the Elasticity of Substitution (ES) between capital and labour and factor productivity for Australia, an economy which experienced major economic reform that substantially increased the flexibility of its labour, product and capital markets throughout the 1980s and 1990s. It employs a Sato production function spe...

Over the recent decades the most significant global imbalances have been between Asia-Pacific economies, with most attention directed to the imbalances of the largest economies, China, Japan and the United States. In contrast, this paper examines how external account imbalances and real long term interest rates are determined in smaller open econom...

This paper proposes a straightforward model for analysing the impact of export commodity price fluctuations on open macroeconomies with particular reference to Australia and New Zealand, major commodity exporters in the Asian region. It extends the dependent economy approach, first by re-specifying goods and services production as either exportable...

This paper develops a straightforward theoretical framework for evaluating exchange rate regime choice for small economies. It proposes that a floating exchange rate minimises national income and employment variation when real macroeconomic shocks predominate, whereas a pegged exchange rate achieves this goal should monetary shocks predominate. It...

The consolidated measures of budget deficits and public debt levels for India’s central and state governments are well above the average of other emerging economies. In contrast to previous studies of India’s budgetary position, which focus on the central government’s budget, this paper examines fiscal sustainability at the level of India’s states,...

To counter the impact of the 2007-09 global financial crisis on the real sectors of their economies, governments worldwide used fiscal policy to stimulate macroeconomic activity, though the effectiveness of such measures remains an issue of debate. This chapter aims to improve conceptual understanding of the nexus between budget deficits and the re...

This article examines the efficacy of fiscal policy in Australia, focusing on the relationship between changes in the economy’s consolidated fiscal imbalance and private sector saving over recent decades. We first examine the macroeconomic significance of the offset coefficient between public and private savings, whose size effectively determines t...

This paper examines whether domestic or foreign net saving predominantly influences an economy’s international borrowing and lending with reference to the experience of western European economies that have had sizable current account surpluses and deficits since the turn of the century. It proposes that if an international lender country’s current...

A close scrutiny of the pattern of aggregate expenditure recorded in the Australian national accounts reveals it was the behaviour of exports and imports, and not increased fiscal activity, that was primarily responsible for offsetting the fall in private investment due to the Global Financial Crisis. The examination of a broad set of national inco...

This paper examines the impact of global financial crises on the Australian economy and how monetary and fiscal policy may be used to manage economic downturns that result. To do so, it presents a straightforward analytical framework incorporating financial wealth, exchange rate expectations, foreign demand and interest rate risk to analyse the key...

Fiscal policy has been actively deployed globally by G20 governments to counter the impact of the global financial crisis on the real sectors of their economies. This coordinated fiscal response has involved a mix of new public expenditure, including on infrastructure, tax relief and increased income transfers to favoured groups. In the end, the ca...

Using recent national accounts data, this paper examines whether the extensive fiscal stimulus program implemented by the Australian government in 2008-09 countered the GFC-induced economic slowdown, as measured by variation in real GDP, especially during the critical December 2008 and March 2009 quarters. With reference to the expenditure measure...

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Over the past decade international policy-makers have perceived the current account deficit of the world's largest foreign borrower economy, the United States, as a threat to global economic and financial stability. Yet, by bridging the US domestic saving-investment gap, capital inflow that matched the huge US current account deficit also enabled a...

This book analyzes key international monetary issues from a macro-foundations perspective. It proposes novel frameworks, mainly diagrammatic, to interpret macroeconomic and financial linkages for globally integrated economies, examining global imbalances, exchange rates, interest rates, international capital flows, inflation, foreign and public deb...

This paper questions the rationale for the Future Fund. Contrary to existing policy, it proposes that further budgetary contributions needed to meet the Australian Government's future superannuation liabilities be sourced from the expenses side of the federal budget on a predetermined basis, rather than until recently from budget surpluses "ex post...

This paper examines how China's heavily managed exchange rate contributes to its huge trade surplus with its major trading partners, most notably the United States. Based on the distinction between economies’ aggregate output and expenditure and on the premise that exchange rates are shared variables, it develops a straightforward framework that sh...

This paper proposes an extended loanable-funds framework for examining the effects of fiscal stimulus on the budget balance, international borrowing, real interest rates, private saving, private investment and national income. It challenges the prevailing view that fiscal policy can be used effectively as an income 'stimulus' instrument, and propos...

New Zealand's persistent current account deficits and high external debt level remain central to ongoing economic policy debate. However, what is often overlooked is the potentially positive macroeconomic contribution made by foreign finance. This paper suggests that foreign capital inflows, the counterpart of current account deficits, have in fact...

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This chapter examines the relationship between exchange rates, global imbalances, international borrowing and lending behaviour and long-term real interest rates. It establishes which domestic and international macroeconomic variables primarily influence exchange rates, external imbalances and global interest rates over any given time for both larg...

This chapter develops an alternative international macroeconomic model for evaluating the effectiveness of fiscal and monetary policy in stabilizing national income under fixed and floating exchange rates. It encompasses national output and income, saving, investment, the current account, interest rates and the money supply, while incorporating lon...

The current account imbalances of many advanced and emerging economies have widened significantly as a proportion of GDP in the wake of the international capital market liberalization that began in the early 1980s. As a result, international borrower countries, especially the US, Australia and New Zealand, have experienced sharp rises in external i...

This chapter develops new frameworks for analysing the international monetary repercussions of trade imbalances and exchange rate policy in an economic growth context. It first develops an alternative two-region flow model of trade imbalances and the exchange rate that combines exports, imports and monetary flows. It then examines links between the...

The conduct and effectiveness of monetary policy has changed markedly over recent decades as capital markets have become more internationally integrated, external imbalances have widened and exchange rates have become more variable. Inflation targeting is also now a primary goal of monetary policy in many advanced and emerging economies. Yet in thi...

This chapter examines two issues of relevance to macroeconomic stabilization policy, one relating to monetary policy, the other to fiscal policy. The first concerns the impact of unexpected inflation on domestic borrowers and lenders in the economy and what this implies for the conduct of monetary policy.

Since the demise of the Bretton Woods system of exchange rate management and consequent dismantling of a broad range of exchange controls, there has been enormous growth in the volume of international capital flows to advanced and emerging economies around the globe. Meanwhile, liberalized capital accounts have increased emerging economies’ financi...

This chapter presents an alternative monetary model of the exchange rate and balance of payments which yields several new results about the international adjustment process. For instance, it reveals that contrary to the traditional monetary approach to the balance of payments international adjustment under fixed rates is consistent with money marke...

Since the breakdown of the Bretton Woods monetary system that prevailed from 1945 to the early 1970s, there has been greater exchange rate variability combined with phenomenal growth in the volume of international capital flows. This expansion of capital flows followed dismantling of the edifice of exchange controls that supposedly facilitated exch...

New Zealand’s unrelenting current account deficits, its trade performance and high external debt level remain central to ongoing economic policy debates. However, what has been overlooked in the discussion of New Zealand’s economic relations with its trading partners is the positive contribution that foreign capital inflow makes to the nation’s eco...

This paper examines the relationship between the United States saving-investment imbalance and long-term real interest rates using a new international borrowing and lending framework. It first establishes how domestic or international factors may primarily influence the US external imbalance and interest rates over any given time before showing tha...

This paper evaluates China's exchange rate policy and current account surplus in the context of its rapid development. Recognizing that external imbalances reflect divergent national production and expenditure growth within both China and its trading partners, it contends that yuan exchange rate undervaluation against major currencies is central to...

This paper develops an alternative international macroeconomic model for evaluating the effectiveness of fiscal and monetary policy in stabilising national income under fixed and floating exchange rates. It encompasses national output and income, saving, investment, money and capital flows and linkages between the exchange rate, price levels and re...

This paper develops a new international monetary framework for analysing the domestic and international repercussions of China’s exchange rate policy in the context of its rapid development. This straightforward framework reveals that misalignment of the yuan against major currencies artificially assists China’s output growth, contributes to global...

A pegged exchange rate regime has been pivotal to China's export-led development strategy. However, its huge trade surpluses and massive build up of international reserves have been matched by large deficits for major trading partners, creating acute policy concerns abroad, especially in the USA. This paper provides a straightforward conceptual fra...

This paper presents a simple framework for analyzing the macroeconomic effects of internal and external shocks under polar exchange rate regimes. It highlights the significance of fluctuations in competitiveness and real income for exchange rate policy, revealing that positive (negative) real shocks increase (decrease) national income and strengthe...

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This paper examines the macroeconomic implications of capital controls that limit international financial flows to emerging economies. Using extended loanable funds analysis, it first demonstrates how perfect capital mobility contributes to development, contrary to a prevalent view that international borrowing inimical to the economic welfare of de...

A pegged exchange rate regime has been pivotal to China's export-led development strategy. However, its huge trade surpluses and massive build up of international reserves have been matched by large deficits for major trading partners, creating acute policy concerns abroad, especially in the United States. This paper provides a straightforward conc...

:Public debt levels in Indonesia, Malaysia, Thailand, and the Philippines (the ASEAN-4) significantly exceed pre-Asian crisis levels due to persistently large fiscal deficits and bank recapitalization measures. This article algebraically derives key formulae and presents graphical techniques for understanding and assessing the sustainability of pub...

Large post crisis fiscal deficits and financial sector restructuring have substantially raised public debt levels in Indonesia, Malaysia, Thailand and the Philippines. Fiscal vulnerability has therefore displaced financial sector weakness as a key source of crisis risk, especially for the Philippines and Indonesia. Achieving significantly higher pr...

Large current account deficits and foreign debt levels remain a source of concern for international financial markets and policymakers. Yet, exactly what an "excessive" external deficit or liability position for an advanced economy is at any time has never been adequately defined. This article addresses the question by proposing new methods for ass...

This article proposes an alternative monetary model for examining the effects of domestic monetary shocks on the exchange rate and the balance of payments. Using an output-expenditure framework, it shows that domestic monetary shocks can drive a wedge between national expenditure and production and generate incipient current account imbalances with...

Public debt levels in Indonesia, Malaysia, Thailand and the Philippines (the ASEAN-4) significantly exceed pre-Asian crisis levels due to persistently large fiscal deficits and bank re-capitalisation measures. This article algebraically derives key formulae and presents graphical techniques for understanding and assessing the sustainability of publ...

External imbalances should not be considered worrisome, in and of themselves. On the contrary, since capital inflow or foreign saving complements domestic savings, it plays an important role in the process of domestic capital accumulation enabling faster economic growth. Meanwhile, the national income of creditor countries also rises to the extent...