Macroeconomic Adjustment and Income Distribution: A Macro-Micro Simulation Model

This paper presents a macro simulation model to quantify the effects of stabilisation packages on the distribution of income and wealth. It is a macro-micro model since it combines macroeconomic aspects with the microeconomic optimising behaviour characteristic of computable general equilibrium models. It can be applied to many developing countries by changing the institutional characteristics that describe commodity markets, financial markets and labour markets. Since the simulation package incorporated quite a large number of closures, the model is referred to as a "maquette." The paper closes with illustrative simulations of the maquette showing how the distribution of income and wealth of a primary exporting economy is likely to be affected by alternative fiscal, monetary and exchange rate policies in response to a reduction in the availability of external funds to finance a fiscal deficit ...