Providing complimentarity for the main components of macroeconomic dynamics

Abstract

We propose a new way to provide complementarities of main macroeconomic indicators — economic growth, employment and inflation. It is shown at the example of monetary policy of world’s main central banks that, while officially the banks mainly have one purpose mandate, which is inflation (except of the U.S. where the central bank are officially to control both inflation and employment, unofficially they try to control all three main macroeconomic values, to provide their complementarities. It is difficult to provide complementarities of three main macroeconomic indicators in the absence of an economic model that connects both the three integrated indicators, and numerous intermediate ones, which determine each of the three main indicators. Finally, choice of any regulation instrument is determined by the model chosen by regulator to provide interconnection between integrated values and intermediate indicators. Analyzing the history of monetary policy for world’s main central banks, we revealed changing efficiency for their regulation instruments in terms of their effect on economic growth, employment and inflation. It varies from maximum efficiency in the optimum point in time to minimum efficiency, which requires a change of the regulation instrument for a new one to provide a more stable and forecastable cause-result connection between final and intermediate indicators. At the base of author’s CMI-model of macroeconomic dynamics we grounded the formula that connects as three main macroeconomic values so numerous intermediate indicators. It allows us, targeting only one integrated indicator (cumulative market imperfections) to control economic growth, employment and inflation at the same time. For that purpose we can chose all possible instruments both of monetary policy and of other policies (fiscal, antitrust, innovation ones etc.). Besides, we would be able to control efficiency of the action of the applied regulation instruments on the main macroeconomic indicators to determine the quantitative criterion of optimum efficiency for regulation instruments.